What is bartar system? State the limitations of the same.
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Answers
What is bartar system ?
Bartar system is the system of exchanging goods for goods, this system was long ago used when money was not invented.
Limitations of bartar system
- The major drawback of the barter system was that sometimes the owner of some goods could find someone who wanted his goods and possessed that goods that the first person wanted. Hence No exchange was possible.
- Absence of a common unit of measurement.
- In barter system, money was stored in exchange of goods, storing of goods carried some problems like cost of storage, loss of value, transfer from one place to other, etc. which was difficult for people.
BARTER SYSTEM :
• Prior to the introduction of money, Barter system was in vague.
• In this system one commodity exchanged with another commodity.
• In Barter System no one can produce all the goods at his disposal, hence the goods are exchanged.
• So, money was invented to overcome the problems of Barter System.
LIMITATIONS OF BARTER SYSTEM :
Lack of store of value : In Barter System we can store the value of certain goods. As, some goods are perishable the cannot be stored for long time. Their value will be lost.
Lack of Divisibility of goods : Some goods are cannot be divided. For example, we cannot divide a horse for 1 bag of rice.
No measure of value : In Barter System, we cannot measure the value of goods. As, some goods have more value than the exchanged goods.
No Future Transactions : In Barter System we cannot pay in future for the present transactions.
So, to overcome the above limitations money was invented.