This is a form of trade where goods and services are exchanged for other goods and services.
- Satisfaction of wants: And individual is able to get what he or she needs.
- Surplus disposal: an individual or country is able to dispose off its surpluses.
- Social relations: it promotes social links since the communities trade together.
- Specialization: some communities shall specialize in a particular commodity.
- 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.
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