Explain with reason whether you 'agree' or 'disagree' with the following statement:
Barter system had many difficulties.
Yes, I agree to the statement. Reasons : Difficulties faced under Barter system –
(i) Lack of double co-incidence of wants : Under Barter system, exchange is possible only when there is double co-incidence of wants. It means that both the parties' needs to coincide their wants. For example, if a person ‘A’ has shoes and is in need of wheat and a person ‘B’ has milk and is in need of rice, then in such a case, exchange between ‘A' and ‘B’ would not take place as both are not in need of each other’s goods.
(ii) Lack of common measure of value : In barter exchange, there was no common measure of value or unit of account. Hence, it was difficult to calculate the values of goods exchanged. For example, it was difficult to compare 2 kgs of onions with two litres of milk. At the same time, it was difficult to compare certain units of a commodity with any service.
(iii) Difficulty of storage of goods : In barter exchange, it was necessary to store goods for future consumption. But, the storage of highly perishable goods like fish, vegetables, milk, etc. was difficult. Also, there were space constraints.
(iv) Problem of indivisibility : Under barter system, making a fractional payment was difficult especially when certain commodities to be exchanged were indivisible in nature. For example, person ‘A’ has a bag of wheat which he intends to exchange for a cow with person ‘ B’. But suppose ‘B’ wanted only half a bag of wheat, then it would be difficult to offer half of the cow.
(v) Problem of making deferred payments : Deferred payments means payments to be made in future. When people used to borrow cattle, it was difficult to return the cattle in the same physical condition, after a few year. These difficulties of barter system led to the invention of money.
Video Tutorials For All Subjects
- Concept of Barter Exchange