Define barter system of exchange. State any two shortcomings of barter
system of exchange.
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In barter system, there is no common measure of value; therefore, it is difficult to find out any fixed ratio for exchanging goods and services. For example, an individual is willing to buy wheat in exchange of cloth. In such a case, the condition of double coincidence of wants is satisfied.
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(i) Lack of double coincidence of wants It was a major drawback of the barter system. ... (ii) Lack of common measure of value In barter system, there was absence of a common unit of measurement in which the value of goods and services can be measured. In the absence of common unit, proper valuation was not possible.
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