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Barter System - Drawbacks of Barter System | Class 12, Macro Economics | NCERT Video Lecture

FAQs on Barter System - Drawbacks of Barter System - Class 12, Macro Economics - NCERT Video Lecture

1. What is the barter system and what are its drawbacks?

Ans. The barter system is a system of exchange where goods and services are directly traded for other goods and services without the use of money. However, it has several drawbacks. Firstly, it requires a double coincidence of wants, meaning both parties must have something the other party desires. This can make finding suitable trading partners difficult. Secondly, it lacks a common measure of value, making it challenging to determine the relative worth of different goods. Thirdly, the barter system is inefficient and time-consuming compared to using a standardized medium of exchange like money. Lastly, it restricts the possibility of specialization and division of labor, as individuals are limited to what they can produce or possess.

2. How does the barter system affect economic efficiency?

Ans. The barter system can adversely affect economic efficiency. Due to the lack of a common measure of value, it becomes difficult to determine the fair exchange rate between different goods. This can lead to inefficient allocation of resources and an imbalance in the distribution of goods. Additionally, the barter system requires a significant amount of time and effort to negotiate and complete transactions, resulting in reduced productivity and increased transaction costs. Overall, the limitations of the barter system can hinder economic efficiency and growth.

3. Can the barter system coexist with the use of money in an economy?

Ans. While the barter system can coexist with the use of money in an economy, it is not as prevalent in modern societies. Money serves as a medium of exchange, unit of account, and store of value, making transactions more efficient and convenient. However, in certain situations, barter may still occur as a complementary system, especially in informal or localized economies. For example, in rural areas or during times of economic crisis, bartering may be used as an alternative means of trade when money is scarce or unavailable.

4. How does the lack of divisibility affect the barter system?

Ans. The lack of divisibility is a significant drawback of the barter system. Goods in the barter system are usually exchanged on a one-to-one basis, which restricts the ability to make transactions involving fractional units or small quantities. This lack of divisibility can create inefficiencies and difficulties in trading. For instance, if a person wants to exchange a large item for multiple smaller items, finding someone with the exact combination of smaller items can be challenging. The lack of divisibility further emphasizes the limitations of the barter system compared to a monetary system.

5. How does the barter system limit economic growth and specialization?

Ans. The barter system limits economic growth and specialization by restricting the possibilities of exchange and specialization. In a barter system, individuals are constrained by what they can produce or possess. This limits their ability to engage in specialized production and take advantage of economies of scale. Without the ability to specialize, overall productivity and efficiency suffer, as individuals cannot focus on producing goods or services in which they have a comparative advantage. The introduction of a monetary system provides individuals with greater flexibility to specialize, trade, and enhance economic growth.

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Sep 26, 2025 Last updated

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