Barter trade

This is a form of trade where goods and services are exchanged for other goods and services.

Benefits

1. Satisfaction of wants: And individual is able to get what he or she needs.
2. Surplus disposal: an individual or country is able to dispose off its surpluses.
3. Social relations: it promotes social links since the communities trade together.
4. Specialization: some communities shall specialize in a particular commodity.
5. Improved living standards: this is enhanced receiving what one is unable to produce.

Limitations of Barter trade

• Lack of double coincidence of wants: – it is difficult to find two people with the need for each other’s product at the same time.
• Lack of store of value/ perishability of some commodities: – some goods are perishable thus their value cannot be stored for a long time for future purposes e.g. one cannot store vegetables for exchange purposes in future.
• Indivisibility of some commodities: -it is difficult to divide some products like livestock into smaller units to be exchanged with other commodities.
• Lack of standard measure of value: – It is not easy to determine how much one commodity can be exchanged for a given quantity of another commodity.
• Transportation problem: It is difficult to transport bulky goods especially when there is no faster means of transport.
• Lack of a standard deferred payment: – The exchange of goods cannot be postponed since the time the payment is made, there could be fluctuation in value, demand for a commodity may not exist and the nature and quality of a good may not be guaranteed. It may be therefore difficult what to decide what to accept for future payment.
• Lack of specialization: – Everyone strives to produce all the goods he or she needs due to the problem of double coincidence of wants.
• Lacks unit of account- it is difficult to assess the value of commodities and keep their record.