Berter System

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  • Topic: Money, Currency, Medium of exchange
  • Pages : 3 (748 words )
  • Download(s) : 123
  • Published : May 3, 2011
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1Q. Problem of barter system? How dose money solve it?

Ans: barter system is a traditional system in which people sell goods and services in order to obtain other goods and services through direct exchange without the mediation of money. But there is some problem of barter system. The problem of barter system are given below

Fig- barter system difficulties

Lack of unit of account: The first difficulties of barter system are lack of account. It is obvious that under pure barter exchange only a very primitive economy where people produced and exchanged only very few goods and services could exist the existence of the modern highly developed economies, which have provided people the immerge benefits of mass scale production and consumption of millions of goods and services made possible under highly developed form of money and credit exchange system, which unthinkable under barter system. Since in this system there was no scope for prating specialization and division of labors in production under barter system. It is a also impossible to utilize the production capacity.

Lack of a double coincidence of wants: the second's serious difficulty of barter system was the lack of a double coincidence of wants. In a barter system a seller of a commodity must not only find some person who is willing to give some value for it but he must find someone who is willing to give in exchange some commodity which is wanted by the seller. In barter system it would very rarely happened. For example- suppose a person possessed cloth which he wanted to barter of milk he could not succeed in acquiring mild unit he met some one who not only had milk to barter but was only willing to acquire cloth for milk. so it arise difficulty form the lack of double coincidence of wants.

Lack of medium of exchange: in barter system another difficulties is lack of medium of exchange for this reason it arise money problem in future payments of wages, salaries, interest, rant and...
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