Question

What is bartering? Why do we not use bartering much in the economy today? You must describe the challenges of using a bartering system

Answer 1

Answer- Barter system is a system where goods are exchanged for some other goods and there no common medium of exchange like money. It was a system which was followed in the ancient times. As the transactions in the barter system increased the problems associated with it also increased ie., people started to have quarrels as to how much of one good should be given to obtain the other and vice versa. This led to huge number of problems. Following were some reasons for it’s discontinuance and challenges associated with it-

• Lack of or No double coincidence of wants- It means that if one person is willing to sell a particular hood for some other particular good then the other person must also have the requirement of the former good, otherwise no sale or purchase would be there.

• No measure of value- There was no common measure for the value of goods like today it’s money in respective currencies. This led to problems of quantities to be exchanged.

• No system of deferred payment- If one person wants to buy the goods on credit basis then there was no proper system of making a payment in future as no future price could be properly set.

• Difficulty of storage- As the goods were either in the form of food grains or any other form thus it required huge storage rooms and was very difficult to store for future use.

• Lack of Individuality- Since goods echanged had no common measure of value thus there existed a problem of individuality as it was difficult to measure how much quantity of one good is to be given or if one person is selling a cow for some food grains and the cow is certainly not divisible. Thus, it led to many problems in barter system.

Due to the presence of the above problems it had to be removed and a proper system of common measure of value needed to be instilled in the economy.