Define and explain Barter system and double coincidence of wants using an example

Expert Solution

A barter system is an old method of exchange. This system has been used for centuries and long before money was invented. People exchanged services and goods for other services and goods in return. A barter system is an old method of exchange. It was never the only method of exchange of goods and services, mostly because it wasn't able to sustain itself. Barter would always be used to compliment another economic system. At first, people used to barter livestock. ... Goods were exchanged for food, weapons, tea and spices among other things. Write any three limitations of the barter system. The limitations of the barter system: ... (ii)Lack of Common Measure of Value: In the barter system, all commodities are not of equal value and there is no common measure (unit) of value of goods and services, in which exchange ratios can be expressed.

Follow these four steps when arranging a barter to ensure that both sides get a sweet deal.

Step 1: Figure Out What You Want to Get―and What You Can Give. The first part is easy. ...
Step 2: Identify a Trading Partner. ...
Step 3: Pop the Question. ...
Step 4: Hammer Out the Details

The main features of barter system are as under: Barter system is direct exchange of goods and services. It requires the double coincidence of wants.Barter system eliminates the use of money. It generally flourishes among uncivilized and backward communities.

DOUBLE COINCIDENCE OF WANTS

The double coincidence of wants mean that both the parties have to agree to sell and buy each other's commodity i.e. what a person desires to sell is exactly what the other person wishes to buy. As barter system means exchange of goods for trading & double coincidence of wants is one of the feature of b.s. which refers to a situation wherein what a person wishes to sell is exactly the same as that the other person wishes to buy. Double Coincidence of Wants is an essential feature in a barter system, where goods are directly exchanged without the use of money. However, in an economy using money as a medium of exchange, eliminates this by providing the crucial intermediate step. Disadvantage # 1. Lack of Double Coincidence of Wants: The functioning of the barter system requires a double coincidence of wants on the part of those whowant to exchange goods or services. ... For, it is a very laborious and time-consuming process to find out person who want each other's goods.

Rahul Sunny answered 1 year ago

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