Question

1. What is Barter System? Explain why Money is a better medium of Exchange compared to Barter System? OR What are the Disadvantages of Barter System?

Answer 1

Barter system is a trade in which goods are exchanged without the use of money.The disadvantages of barter system are that, when a person trades anything valuable he may get something useful for them but the value of it will not be much or the quantity of goods got may be less quantity. Such situations may rise to fights.

Answer 2

Heya

Here is your answer

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Direct exchange for goods without the use of money is called the barter system of exchange.  This also known as CC economy i.e. commodity for commodity money.

Th Disadvantages include:

a) Lack of double coincidence of wants:

Simultaneous fulfillment of wants by buyers and sellers is known as double coincidence  of wants. A shoe manufacturer wants wheat. He would have to look for a wheat  growing farmer who not, only wants to sell wheat but also wants to buy shoes in  exchange.

b) Absence of common measure of value:

When thousands of goods and services are produced and exchanged, there will be  unlimited no. of exchange ratios. Absence of common measuring rod to express  exchange ratios creates problems.

c) Lack of divisibility:

If a person wants to purchase wheat equal to the value of half of his horse, he cannot do so  without killing the horse. Hence lack of divisibility makes barter exchange difficult or -  impossible.

d) Lack of store of value:

Holding stock of goods like cattle, wheat, potatoes etc, involves costly storage and  deterioration.  

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