Limitations of barter system of trade
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Lack of standards for deferred payments This drawback is associated with the absence of a common measure of value, even though if the debt is denominated in units of the product or service that will be used eventually in payment, it is not a problem.
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What is a barter system? What are its drawbacks?
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Discuss the limitations of Barter Exchange. The division of labour came into force which led to the exchange of goods. Barter usually takes place on a bilateral basis, but may be multilateral if it is mediated through a trade exchange. A barter transaction cannot occur if an individual wants to buy a certain amount of goods but only has single invisible unit of another good which is worth more than what the individual wants to obtain. Basics of life — food, shelter clothes tend to work as barter goods, as most people will have need for wheat, but for more specialised goods, only some of the population will want them.
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Later man started settling at a place. They started farming and other occupations.
The needs of man were increased. The division of labour came into force which led to the exchange of goods. Exchange of goods was called the Barter system.
Barter System and It’s Drawbacks
Advantages of Barter System: The advantages of Barter System were Simplicity, More suitable in International trade, No problem of over-production and Under-production, No concentration of economic power. Barter system is very simple, without any complications and suitable in International trade.
In this system the shortage of foreign exchange and imbalance in trade does not occur. It means consumers have to gain goods through exchange. Primitive economies developed through bartering goods.
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- Drawbacks of Barter system.
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But, this is very inconvenient for a developing and more complex economy. Therefore, money tends to involve as a way to facilitate transactions between two people.
6 Major Disadvantages of the Barter System
Apart from very primitive societies, a pure barter economy is very rare. Even in societies with cash, there is often the concept of debt, paying later or just mutual sharing in a co-operative style societies.
However, even in modern life, barter sometimes takes place.