BARTER SYSTEM

WHAT IS BARTER SYSTEM? WHAT ARE INCONVENIENCES OF BARTER SYSTEM?

1. #JUNIOR_ECONOMIST SALMAN KHAN
WHAT IS BARTER SYSTEM? WHAT ARE INCONVENIENCES OF
BARTER SYSTEM?
Barter system
Barter is a system in which goods or services are directly exchanged with the goods or services
without the use of money.
Barter system is suitable only when people have few needs and money system does not exist in
the economy.
Inconveniences / difficulties/ hindrances /barriers / of barter system
Followings are the difficulties that were faced in barter system.
1. Lack of coincidence of wants
2. Lack of common measure of value
3. Lack of subdivision
4. Lack of store of value
5. Difficulty in future payments (credit)
6. Difficulty in transfer of wealth
7. Difficulty in tax collection
8. Lack of specialization
9. Difficulty in budgeting
1. Lack of coincidence of wants
Barter is possible only when there is double coincidence of wants. The main defect of barter is that there is lack
of coincidence of wants.
Example
If a person has surplus rice and he wants to exchange it with wheat. He will have to find a person who has
surplus wheat as well as he needs rice.
2. Lack of common measure of value
In barter system, it is very difficult to measure the value of goods because there is no standard measure for the
valuation of goods
Example
A man who has rice may assign the value to his 1kg rice as equal to 2 kg wheat. However, the other person may
assign a value to his 1 kg wheat as equal to 3 kg rice.
3. Lack of subdivision
In barter system another problem arises when the goods that are exchanged cannot be subdivided into small
parts (units)
Example
If a person has a cow and he wants to exchange it with a goat. It is clear that a cow has more value than a goat.
The problem is what a part of cow is to be given in exchange of goat. The transaction is impossible because cow
cannot be sub-divided.

2. #JUNIOR_ECONOMIST SALMAN KHAN
4. Lack of store of value
In barter system, it is very difficult to store the commodities like fruit, vegetables and animal skins. It means
that one cannot secure his future by storing commodities.

5. Difficulty in future payments (credit)
In barter system, it is very difficult to lend goods to other people because at the time of repayment commodities
may lose their value so credit transitions are impossible.
Example
A person borrowed a goat for one month but at the time of return, the goat may fall sick and lose her value, so
the payments in future under barter are difficult.
6. Difficulty in transfer of wealth
Under barter system, it is very difficult to transfer moveable and immovable from property from one place to
another place
Example
If a person has to transfer 100 goats from Faisalabad to Lahore, It would be very difficult for him to transfer
them.
7. Difficulty in tax collection
Another difficulty, which arises under barter, is that the tax cannot be collected in form of goods. If the tax is
collected, they will lose their value with the passage of time.
8. Lack of specialization
Under the barter it is very difficult to attain specialization in their fields, because the people remain busy in
meeting their own needs and they do not focus on effective ( ) utilization ( ) of resources.
9. Difficulty in budgeting
Budgeting is an art of estimating of estimating ( ) future expenses and revenues. Under the barter system, it is
very difficult to estimate future expenses and incomes