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Write barter system limitation

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Write barter system limitation

Posted by Kamini . 6 years, 2 months ago

CBSE > Class 12 > Economics

1 answers

Preeti Dabral 6 years, 2 months ago

Problem of double coincidence of want: Double coincidence of wants means both the buyer and seller should be ready to exchange the goods. Under this, one has to possess a good or service of equal value, which the supplier also desires. In other words, in a barter system, exchange can take place only if there is a double coincidence of wants between two transacting parties. The likehood of a double coincidence of wants, however, is bleak and makes the exchange of goods and services very difficult.
Lack of common measure of value: We know all the goods have different values and these days the value of each good is expressed in the monetary unit. Measurement of value was the main difficulty of the barter system. In the absence of the common measure, the seller has to express value of his good in all other goods. For example, if you want to sell your horse you have to express its value-
1 Horse = 2 cows
1 Horse = 5 bags of wheat
1 Horse = 20 kg of iron
Lack of standards of deferred payments: Deferred payments refer to those payments which are made sometimes in future. Payment of loans is also referred as deferred payments. Without the use of money the system of deferred payments is not possible as:
1. The borrower may not be able to arrange goods of exactly same quality at the time of repayment.
2. There may be conflicts regarding which specific commodity is to be used for repayment.
3. The commodity to be repaid, may loose or gain its value at the time of repayment.
Lack fo store of value: Under barter system, it is difficult for people to store wealth for future use because:
1. Most of the goods don't possess durability.
2. Storage fo goods require time and efforts.
Indivisibility of goods: Most of the goods are not divisible. Suppose, a household wants to sell his horse and wanted to get cloth and shoes in exchange, then it would be impossible to divide the horse in two parts to buy two different goods.

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