What is Barter System? What is it's Advantage and Limitations?

What is Barter System? 

In Ancient Time when money was not invented at that time we use barter system to trade. Barter system refer to exchange of goods for goods or without the use of money. It was the medium of trade between people at that time. For example see below picture in this there is a lady who has tomatoes and a man who has wheat. They both doing trade with each other with the help of barter system. Man gives wheat to the lady and in exchange of it lady gives tomatoes to him. 

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 Advantage/Benefits of Barter System

• It is the simplest system of trade.

• No problem in foreign exchange because there is no money so there is no problem related to convert of Rs. to Dollar.

• No currency used in barter system so there is no danger of fake currency.

• There is no control over exchange value. Value of exchange depend on trader's negotiations

Disadvantage/ Limitations of Barter System

• Lack of co-incidence of wants E.g. A person who has banana want some apple and another person has oranges so no trade can be done between them because there is co-incidence of want.

• It leads to increase search cost/Transportation cost because the person who need apple have to find some one who has apples.

• Loss of value also done due to storage of perishable goods.

• Value of good trade may not be equal. As there is no standard exchange.