Question

Mention any three limitation of the barter system. (3marks)

Answer 1

Answer:

Explanation:

In trade, barter is a system of exchange where participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money.

The major limitations of Barter Exchange are:

1. Lack of Double Coincidence of Wants:

Barter system can work only when both buyer and seller are ready to exchange each other’s goods. For example, A can exchange goods with B only when A has what B wants and B has what A wants. However, such double coincidence is very rare.

2. Lack of Common Measure of Value:

In the barter system, all commodities are not of equal value and there is no common measure (unit) of value of goods and services, in which exchange ratios can be expressed. For example, if A has wheat and B has rice, then it is difficult to decide, how much wheat is needed to exchange with one kilogram of rice. In the absence of common measure, the exchange ratio is fixed randomly, in which one of the party generally suffers.

Barter system can work with few commodities in the primitive society. However, it is very difficult in the modern economy, where we need millions of exchange ratios for a large number of goods and services.

3. Lack of Standard of Deferred Payment:

Under barter system, contracts involving future payments or credit transactions cannot take place with ease because of following reasons:

(a) The borrower may not be able to arrange goods of exactly same quality at the time of repayment.

Answer 2

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Barter Exchange: Meaning and Limitations of Barter Exchange

Barter System can work when there exists 'Double Coincidence of Wants':

The major limitations of Barter Exchange are:

Lack of Double Coincidence of Wants:

Lack of Common Measure of Value:

Lack of Standard of Deferred Payment:

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