Mention three limitations of barter system
Answers
1. Lack of Double Coincidence of Wants.
2. Lack of Common Measure of Value
3. Lack of Standard of Deferred Payment.
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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. The limitations 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 of stock of goods like cattle, wheat, potatoes etc, involves costly storage and deterioration