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Monday, 8 October 2012

Define barter system? What are the inconveniences of barter system?



Barter system:

Barter is a system in which the direct exchange of goods and services for goods and services. The barter was possible due to the limited wants of the human being even today barter system is still used in international trade.

Inconviences:


1.                 Double co-incidence of wants:

The Barter System needs the matching of wants of the two parties’ co-incidence. A person has to fund another person who is ready to accept the goods of the first person in the exchange of his own goods. It is necessary to fund two persons whose exchangeable goods suit the needs of each other.

2.                 Lack of common measure:

In barter economy there is no common standard by which the value of the goods to be exchanged can be measured. Thus each transaction which takes place would require to determination of the ratio of exchange between to be exchange.

3.                 Lack of sub-divisions:

The another drawback of barter system is the lack of sub-division. It means that if there is double co-incidence of wants between two parties but the exchange will not take place even then. These are particularly in these commodities which are not sub-divided.

4.                 Lack of store of value:

The another problem in the barter system is the lake of storage in a perishable goods. They losses their value as the time passes.

5.                 Difficulty in transfer of wealth:
                                                                                                                                                                                                                                                                                                                              
The transferring of wealth from one place to another place is very difficult in the barter system. The immovable properly cannot be shifted from one place to another place. Similarly, the transfer of movable assets cannot be easily transferred from one place to another place.

6.                 Difficulties in tax collection:

The another problem in barter system is collection of taxes in the form of goods from the tax payers. If a good are collected as a tax than it will lose. Its value as the time passes on and secondly the problem of storage is also arise.

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