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Barter System of exchange

MRS. KAMLESH UTTAM

PGT ECONOMICS

JNV FAROUR

FATEH GARH SAHIB

PUNJAB

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Barter System of exchange

Barter system of exchange is a system in which goods are exchanged for goods. If you have surplus production of Rice, you are to look for a person who need rice, and at the same possesses cloths which you need to have. It means double coincidence of wants.

Drawbacks of the Barter system:-

1. Difficulty of double coincidence of wants.

2. Lack of common unit of value.

3. Lack of a system for future payment.

4. Lack of system of storage of value or storage of purchasing power

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Difficulty of the Barter system:-

Double coincidence of wants is the main requirement of the barter system of exchange. Double coincidence of wants implies that goods in possession of two different individuals surplus-production of Rice you are to look for a person who need rice, and at the same possesses cloths which you need to have. It means double coincidence of wants.

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2. Lack of a Common unit of value:-

It was the major draw back in barter system of exchange. In this system if we ask what is the value of your car? Every one reply that the value in terms of goods like horse, cows, chair etc, so there was no common unit of value in Barter system of exchange

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3. Lack of a system for future payments:-

Contractual payment or future payments would certainly be very difficult under barter system of exchange because goods have perishable in nature and it may be possible that in future we do not have same quantity.

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4. Lack of system for storage value or storage of value or Storage of purchasing power:-

A Storage of value implies store of wealth. Store of value is very necessary for the secure of future. Every individual try to save a part of their income for their future needs. This is called store of value. It was not possible to store value in barter system of exchange because goods tends to wear out and perish. In this system we had some difficulty in store of value like cost of storage, loss of value, difficulty in quick disposition

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5.Lack of divisibility:-

In barter system of exchange we could not divide the value now we can.for example if that time I had a cow I could not half it if I need half now due to money as a medium of exchange I pay less amount for any thing.

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