Advantages and Disadvantages of Barter System

The barter system is the oldest system of trade which was prevalent or used many centuries back. It refers to that system under which goods or services were exchanged directly with other goods and services and there was no medium of exchange which is the case in present times where the medium of exchange is money. In order to understand more about barter system lets look at some of the advantages and disadvantages of barter system –

Advantages of Barter System

  1. The first and foremost advantage of barter system is that it’s the simplest system of trade which involves no complications so if you are a wheat seller and you want rice and rice seller wants wheat then both rice and wheat seller will exchange their products without any hassles of the modern day monetary exchange system.
  2. Another benefit of barter system is that since no money is involved people will produce and consume only what they want and there is no under or over production and also there is no question of people hoarding the commodities so as to sell them at higher price which is the case in modern day monetary system where due to presence of money people tend to inflate prices by hoarding even when the production is more than enough.
  3. Another benefit of barter system is that problem of foreign exchange and international trade does not arise and also there is less possibility of concentration of wealth in the hands of few people as different people specializes in different work and nobody can control everybody’s fortune which is the case with money where if one acquires money in abundance then he or she tend to control others and exploit them which is not possible in case of barter system.

Disadvantages of Barter System

  1. The biggest disadvantage of barter system is that it requires double coincidence of want so for example if you are wheat producer and you want apple but the apple producer does not want to buy wheat rather he or she wants rice then you will have to go to rice producer first and buy rice from him or her and then you can buy apple in exchange of rice. Hence barter system leads to a lot of wastage of time in finding the other party and numerous exchanges in order to do a trade.
  2. Another limitation of barter system is that since all people keep produce in physical form as there is no store of value there are many practical problems associated with storage of goods, transportation of goods, wastage of goods due to natural calamities and so on which is not the case when money is used as means of exchange because people can use money when they want any good or service.
  3. Another limitation of barter system is that a big product cannot be divided into small products so for example if the cow owner wants to purchase 1 bag of wheat but wheat owner is giving 5 bags of wheat in exchange of 1 cow, now cow owner cannot cut cow into 5 pieces and hence this problem can be solved only if there is medium of exchange present which in modern economic system is money.

As one can see from the above that barter system has advantages as well as disadvantages but its limitations outweigh its benefits and that is the reason why in present times it is used nowhere in the world.

0 comments… add one

Leave a Comment


Related pages


what is the difference between tariffs and quotasthe disadvantages of globalizationconglomerate acquisitioncompetition based pricing advantages and disadvantagesprivatisation in india pptexplicit cost in economicsperfect competition advantagesadvantages of venture capital financingbhell companydescribe the limitations of the barter systemdifference between demat and trading accountdescribe a traditional economymonopolistic competitive market structuredisadvantage of payback periodwhat is rate sensitive assetsadvantages and disadvantages of b2bfloating exchange ratesskimming and penetrationmerits and demerits of globalizationmarket development strategy advantages and disadvantagesadvantages of an autocratic leadership styledisadvantages of rural areasadvantages and disadvantages of debit card and credit cardadvantages and disadvantages of borrowing moneydcf valuation methodwhat is the difference between monopoly and oligopolydisadvantages of financial statement analysisicici bank founder namewhat is income effect and substitution effectlimitation of marginal costingskimming price strategy definitionconglomerate definition economicswhat is a profitability ratiowhat is fdi and fiifull form of tds in bankingwhat is a autocratic leaderaccounting conventions definitionexplain the expenditure method of measuring national incomedifference between systematic and unsystematic riskfullform of tdsdirect and indirect quotationexample of a conglomerateadvantages and disadvantages of welfare statejain irrigation dvr share priceadvantages and disadvantages of money market mutual fundsdefinition of marginal costinghorizontal analysis of a balance sheetwhat are the characteristics of a mixed economywhat does the law of diminishing marginal utility statefifo methodsconglomerate definition economicsadvantages of a swot analysisautocratic leadership style pdffullform of tdsdifference between monopoly and oligopolycapitalism advantages and disadvantagesdifference between monopoly and oligopolypremium pricing strategy advantages disadvantagesdisadvantages sales promotiondirect quotation indirect quotationwhat is the law of diminishing returns in economicsadvantages and disadvantages of deforestationwhat is the theory of absolute advantagequota vs tariffdefine unsystematic riskwhat are mixed economiesadvantages and disadvantages of b2bskimming pricing strategy examplesdisadvantages of autocratic leadershipdemerit of capitalismadvantages of a takeoverexamples of direct and indirect quotesfluctuating exchange ratesretail vs wholesale definitionadvantages and disadvantages of penetration pricing