Question

What is the barter system?

Answer 1

Hint:It is an old method of trade. It mostly takes place on a bilateral basis but can also be multilateral involving a trade exchange. Different mediums of exchange are used in the barter system. Goods are given a value not in monetary terms but in terms of other goods.

Complete Answer: The system of trade in which the participants directly exchange goods or services for other goods or services without the use of a medium of exchange like money is known as the barter system. The advantages of the barter system are:
- It is a simple form of trade.
- As direct barter does not involve the exchange of money. It can be done when there is a shortage of money or when there is a lack of trust between the traders.
Disadvantages of such a system are:
- Both the parties should have an agreement on the goods they want in exchange.
- The goods can’t be measured and the value can’t be told.
- The goods aren’t indivisible so the number of certain goods for exchange can’t be decided.
Under this system, the medium of payment was usually agricultural produce and animals like crops and animals for different services or other types of goods. This method was used before the invention of money and is still used in some places.

Note:The barter system was used when people had a very simple lifestyle and were mostly dependent on agriculture, but as the lifestyle of people changed it made the barter system a difficult medium of exchange.