ECONOMICS-1

ASSIGNMENT UNIT-IV
QUESTION:-Discuss the limitations of the barter system. In light of these limitations,
explain
How many evolve and it’s various functions.

Meaning of Barter:
'Direct exchange of goods against goods without use of money is called barter exchange.
“Alternatively, economic exchanges without the median of money are referred to as barter
exchanges.An economy based on barter exchange i.e., exchange of goods for goods is called
C.C.Economy i.e.. Commodity for commodity exchange economy. In such an economy a person
gives his surplus good and gets in return the good he needs.

What is a Barter System?

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.Today,bartering has made a comeback using techniques that are more sophisticated to
aid in trading;for instance,the Internet.In ancient times,this system involved people in the same
area,however today bartering is global.The value of bartering items can be negotiated with the
other party Bartering doesn't involve money which is one of the advantages.You can buy items
by exchanging an item you have but no longer want or need. Generally.trading in this manner is
done through Online auctions and swap markets.For example ,when a weaver gives clath to the
farmer in return for getting wheat from the farmer,this is called barter exchange.Similarly the
farmer can get other goods of his requirement like shoes,cow,plough,spade,etc.by giving his
surplus wheat(or rice or maize).
Thus,the system of barter exchange fulfills to some extent the requirements of both the parties
involved in exchange.However,as the transactions increased,inconveniences and difficulties of
barter exchange also increased involving rising trading costs.Trading costs are costs of engaging
in trade.Its two components are search cost and disutility of waiting.Remember.search cost is the
high cost of searching suitable persons to exchange goods and disutility of waiting refers to time
period spent on searching the required person.This ultimately led to evolution of money as
medium of exchange.
History of Bartering:
The history of bartering dates all the way back to 6000 BC Introduced tiy Mesopotamia tribes,
bartering was adopted by Phoenicians.Phoenicians bartered goods ta thase located in various
other cities across oceans.Babylonians also develaped an improved bartering system.Goods
weree exchanged for food ,tea ,weapons ,and spices. At times ,human skulls were uesed as well
Salt was another popular item excharged salt was so valuable that Roman soldier’s salaries were
paid with it.in the Middle Ages,Europians traveled around the globe to barter crafts and furs in
exchange for silks and perfures.Colonial Americans exchanger musket balls,deer skins, and
wheait.When mpney was invented,bartering did not end,it berome more organized.
Due to lack of money,bartering became popular in the 1930s during the Great Depression.tt was
used to obtain food and various other services It was done through proups or btween people who
acted similar to banks if any items were sold,the owner would receive credit and the buyer's
account would be debited
Characteristies of Barter Trade:
1.The barter system Is a direct exchange of goods and services.
Money does not play any role in barter trade,so one can directly exchange the goods and services
without using money.
2.You need to require a double coincidence on goods
In barter system goods are exchanged against goods ,Yes,we can say that the goods were used as
money,but you need to require a double confidence of goods to exchange your goods.
3.It is an effective method for limited population.
The system is effective for limited population,where people know the need of others and can
exchange according to their demand.
4.Stability In the economy
Is an important characteristic. In barter system ,demand for goods and services do not depend on
prices,therefore it brings stability and smoothness in the economy functions.
5.Barter reduces cheating and fraud cases.
Barter system reduces cheating and fraud cases in every economy.Goods can be determined to
compare values of the exchange.
These are the basic characteristics of barter system,which impress and allow you to exchange
unused goods,One of the best barter websites in India for exchanging goods and services is
lusebarter.You can exchange electronics new products with the old ones without any hassle on
lusebarter.Choose the products from different categories and exchange as per your needs.
What are the advantages of Barter system?
1. It is a simple system devoid of the complex problems of the modern monetary system.
2. There is no question of over or under production for of unemployment ar over-hill
eriployment) under the barter system since goods are produced just to meet the needs of
the society
3. The problems of international trade,such as,foreign exchange crisis,adverse balance of
payments,do not exist under barter system
4. There is no problem of concentration of economic power into the hands of a few rich
pervans under the barter system because there is no possibility of storing the
commodities.
5. Personal and natural resources are ideally utitised to meet the needs of the society without
involving, any wastage.
6. The barter system also reaps the benefits of division of labour because it represents a
great step forward from a state of self-sufficiency hi which every man has to be a jack of
all trades and master of none.
What are the difficulties of Barter System?
Barter system involves various difficulties and inconveniences which are discussed below:
1. Double Coincidence of Wants: Under barter system,a double coincidence of wants is
required for exchange.In other words, the wants of the two persons who dewre to
exchange goods must coincide .For example,if person A wants to acquire shoes in
exchange for wheat,then he must find another person who wants wheat for shoes. Such a
double coincidence of wants involves great difficulty and wastage of time in a modern
society.it rarely occurs.In the absence of a double coincidence of wants,the individuals
under barter system are compelled either the goods for long periods of time,or to make
nurmerous intermedary exchange' order to get finally the goods of their choice.
2. Absence of Common Measure of Value: Even if it is possible to have the double
coincidence of wants,the absence of a common measure of value creates great problem
because a lot of time is wasted to strike a bargain. Since there is no common measure in
terms of which the value of a commodity can be expressed,the problem arises how much
wheat should be exchanged for how many pairs of shoes. in fact,under the barter
system,every good munt be espreswed mn terms of every other goods it, for example
,there are 1000 goods in the economv.then,in the absence of monetary unit. Wvery good
can be exchanged for the remaing 999 goods.What is true for one good will be true for all
other 999 goods
3. Lack of Divisibility: Another difficulty ot barter system relates to the fact that al goods
cannot be divided and subdivided.In the absence of a comnon mediumn of exchange,a
problem arises,when a big indiwsible commodity is to be excharged for a smaller
commodity.cFor example,if the price of a horse is equaf to 10 shirts,then a person having
and shirt cannot exchange it for the horse because it is not possible to divide the horse in
small pieces without destroying its utilty.
 4. The Problem of Storing Wealth: Under a barter system,there is absence of a proper and
convenient means of storing wealth or value,
(a)As opposed to storing of generalized purchasing power(in the form of money) in a
monctary economy,the individuals have to store specific purchasing power[in the form ol
horses,shoes,wheat etc. Under the barter system which may decrease in value in the due
course of time due to physical deterioration or a change in tastes.
(b)it is very expensive to store specific goods for a long time.
(c)Again the wealth stored in the form of specific oods may create Jealousy and enmity
among the neighbors or relatives.
5. Difficulty of Deferred Payments: The barter system does not provide a satisfactory unit
in terms of which the contracts about the deferred(future)payments are ta be written .In
an exchange economy,many contracts relate to future activities and future
payments.Under barter system,future payments are written in terms of specific goods.it
creates many problems. Chandler has mentioned three such problems:
(a)it may create controversy regarding the quality of goods or services to be repaid in
future.
(b)The two parties may be unable to agree on the specific good to be used for repayment.
(c)Both parties run the risk that the goods to be repaid may increase or decrease in value
over the period of contract
6. Problem of Transportation: Another difficulty of barter system is that goods and
services cannot be transported conveniently from one place to another.For example,it is
not case and without risk far an Individual to take heaps of wheat or herd of cattle to a
distant market to exchange them for other goods.With the use of money,the
inconveniences or risks of transportation are removed.

CONCLUSION: so we can say that,barter trade shows buy and sett of goods arn services
between two or more parties without the exercise of money Bartering ,benefits individuals
,companies and countries that see a mutual benefit in exchanging goods and services rather than
cash,and it enables those who are lacking hard currency to obtain goods and services. lt is a very
old system that starts back to 6000 BC It was initially introduced by Mesopotamia tribes and
then was adopted by Phoenicians,They bartered goods to those located in various other cities
across oceans. lt was also adopted by Babylonian's.Barter system was an act of trading in which
goads were exchanged for goods instead of money.

SUBMITTED TO: SUBMITTED BY:

MA'AM NIKITA JAIN JHANVI TANWAR
ENROL NO.:-03314703818
2nd Yr/Sem 3/5ec-A