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What are the drawbacks of barter system?
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What are the drawbacks of barter system?
#Double Coincidence of Wants: ... #Absence of Common Measure of Value: ... #Lack of Divisibility: ... #The Problem of Storing Wealth: ... #Difficulty of Deferred Payments: ... #Problem of Transportation:
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What are the drawbacks of barter system?
Drawbacks of the Barter System
The barter system, while historically significant, has several limitations that hinder its efficiency in modern economies.
Lack of Double Coincidence of Wants
- The barter system requires that both parties have what the other desires, which is often not the case.
- This makes it challenging to find suitable trading partners, leading to wasted time and resources.
Indivisibility of Goods
- Some goods cannot be divided without losing value (e.g., livestock).
- This makes it difficult to trade goods of unequal value fairly.
Absence of a Common Measure of Value
- Without a standard unit of account, it is hard to determine the relative value of goods.
- This can lead to disputes and confusion in trade agreements.
Storage and Durability Issues
- Perishable items cannot be stored for long periods, limiting trading opportunities.
- Non-perishable goods may require storage, incurring additional costs.
Difficulty in Deferred Payments
- The barter system does not easily accommodate credit transactions or future payments.
- This limits the ability to make larger transactions that may require time for payoff.
Limited Scope for Specialization
- With barter, individuals may not specialize in their crafts or trades due to the difficulty in exchanging goods.
- This can stifle economic growth and innovation within a community.
Complexity of Transactions
- Engaging in barter can complicate trade processes, requiring multiple exchanges to fulfill needs.
- This complexity can deter participants from engaging in trade altogether.
In conclusion, while the barter system has historical significance, its drawbacks make it less viable in modern economies, leading to the adoption of more efficient monetary systems.
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Read the extract given below and answer the questions that follows:Bartering is the act of trading one good or service for another without using a medium of exchange such as money. A bartering economy differs from a monetary economy in a variety of ways. When barter was used as an exchange medium, the needs of people were very limited. This trading method doesn’t involve money and it relies solely on exchanging goods and services for other services and goods in return. The use of money spans a very large part of our everyday life. To understand the usefulness of money, we must consider what the world would be like without money. How would people exchange goods and services? Economies without money typically engage in the barter system. Barter is highly inefficient for trying to coordinate the trades in a modern advanced economy. In an economy without money, an exchange between two people would involve a double coincidence of wants, a situation in which both the parties have to agree to sell and buy each other’s commodities. This is known as double coincidence of wants. What a person desires to sell is exactly what the other wishes to buy. In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. Another problem with the barter system is that it does not allow us to easily enter into future contracts for purchasing many goods and services. Money solves the problems that the barter system creates. Money serves as a medium of exchange, which means that money acts as an intermediary between the buyer and the seller. Modern forms of money include currency — paper notes and coins. The other form in which people hold money is as deposits with banks.Answer the following MCQs by choosing the most appropriate optionQ. In a barter system

Read the extract given below and answer the questions that follows:Bartering is the act of trading one good or service for another without using a medium of exchange such as money. A bartering economy differs from a monetary economy in a variety of ways. When barter was used as an exchange medium, the needs of people were very limited. This trading method doesn’t involve money and it relies solely on exchanging goods and services for other services and goods in return. The use of money spans a very large part of our everyday life. To understand the usefulness of money, we must consider what the world would be like without money. How would people exchange goods and services? Economies without money typically engage in the barter system. Barter is highly inefficient for trying to coordinate the trades in a modern advanced economy. In an economy without money, an exchange between two people would involve a double coincidence of wants, a situation in which both the parties have to agree to sell and buy each other’s commodities. This is known as double coincidence of wants. What a person desires to sell is exactly what the other wishes to buy. In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. Another problem with the barter system is that it does not allow us to easily enter into future contracts for purchasing many goods and services. Money solves the problems that the barter system creates. Money serves as a medium of exchange, which means that money acts as an intermediary between the buyer and the seller. Modern forms of money include currency — paper notes and coins. The other form in which people hold money is as deposits with banks.Answer the following MCQs by choosing the most appropriate optionQ. Which of the following has an essential feature of double coincidence?

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