So, it makes the barter system inconvenient.Ĥ. And if he gives the horse against 5 kg rice, he is going to lose. In such a case, it is not possible for him to divide the horse into pieces to get the rice. Suppose 1 horse is equal to 100 kg of rice. All the commodities do not possess the same value.įor example, A person wants to exchange his horse and wants 5 kg of rice. This problem mainly arises when the commodity which is to be exchanged is livestock. Divisibility of Goods: Some commodities cannot be divided into small parts/pieces, without any reduction in their actual value. how many dozens of fruits are required to be exchanged for a chair? Basically, these are isolated transactions and in the absence of any common unit of measurement, the exchange is possible only in an arbitrary manner.ģ. So, what they need to decide is what should be the proportion of the two commodities which are to be exchanged, i.e. Hence, the commodity is measured in terms of the commodity only.įor example, there are two parties a fruit seller and a carpenter, who want to exchange fruits against the chair. So, in the absence of any common unit of measurement, people find it difficult to estimate the true and exact value of the commodity. Common Measure of Value: Lack of a common measure of value, is another major issue in barter exchange. In that case, he has to look for such a person who wants 5 kg of wheat and has a pair of shoes to offer in return.Ģ. so, the wants of two people must coincide.įor Example: Suppose Mr Y wants a pair of shoes and he has 5 kg of wheat to offer as consideration. Mutual coincidence pr double coincidence of wants means that if one party wants to exchange a particular commodity with another party, then it is not necessary that the latter is also willing to exchange the commodity which the former party is looking for. Mutual Coincidence of Wants: This is one of the most common problems faced by people in barter exchange. Though barter exchange is simple and immediate, it has certain limitations also, which are discussed hereunder:ġ. Bilateral or Multilateral Trade: The trade can take place between two parties or among multiple parties who are able to supply something which the other party is in need of.Informal Presence: At present barter system only exists in an informal manner and not as an official exchange method.The barter system existed when the economy was cashless, as well as there was no other substitute mode for payment. Absence of Money: In this type of trade, no money is involved in the transaction.Reciprocal: In a barter system, the exchange is reciprocal, which means it is negotiated, wherein the participant get the commodity they need in place of the commodity, they are offering in exchange.In this way, the barter system mutually benefits the participants. The barter system acted as a classical arrangement through which people can get what they need, by offering them some other commodity of their need. Mutual Benefit: In the olden days when society was not so developed and money was not invented.