Q11. 'If you have 2 meters cloth and you want wheat against it, then how much wheat you should get.' Which drawback of Barter Exchange is highlighted ?
Lack of Medium of Exchange
Lack of Store of value
Lack of Measure of value
None of these
Answers
Answer:
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Explanation:
Lack of Double Coincidence of Wants and Exchange: Double coincidence of wants means the simultaneous fulfillment of mutual wants by buyers and sellers. When 2 persons needs goods that are in each other’s possession .There is no guarantee that such double coincidence of want will exists. For Ex., Suppose a person possesses rice and wants to exchange it for a sugar. In the barter system he has to find out a person who not only has sugar but also wants rice
2. Lack of Common Measure of Value Even if the two people who want each other’s goods meet by coincidence, the problem arises in deciding the proportion in which the goods should be exchanged. There being no common measure of value, the rate of exchange will be arbitrarily fixed according to the intensity of demand for each other’s goods. One party is at a disadvantage in the terms of trade between the two goods.
3. Lack of Divisibility: In the absence of a common medium of exchange, a problem arises when a big indivisible commodity is to be exchange for a smaller commodity. For example, if the price of a horse is equal to five sheep, then a person having one sheep cannot exchange it for the horse because it is not possible to divide the horse into small pieces
4. Problem of Storing Wealth: The value of stored commodities may change in the due course of time. These goods may perish after some time. Secondly, it is very expensive to store specific goods for a long time. Finally the wealth stored in the form of specific goods may create jealousy and enmity among the neighbours or relatives.
5. Lack of Standard of Deferred (Future) Payments: Credit transactions requiring future payments cannot take place smoothly under barter trading. There are three main problems in this context. These are
a. It may create controversy regarding the quality of goods or services to be repaid in future.
b. The two parties may be unable to agree on the specific good to be used for repayment.
c. Both parties run the risk that the value of goods to be repaid may increase or decrease in future.