Money is any commodity that is legally acceptable as a means of payment for goods and services. Before Money persons used to bater system. Barter is the exchange of goods and servives withot the use of money. For example i have a yam and you have chicken. If i want chicken i have to give you my yam.
Lets pause... think about it.... what if i dont want your yam? That means i woud not be willing to trade with you. As there are advantages of barter there are also disadvantages.
Take a moment to think and write down two advantages and two disadvantages of the barter system.
I'll give you five minutes.
Finished.... great lets discuss your answers!
Advantages of the Barter System
1. It is the simplest form of trade
The barter system is the simplest form of trade. It involves no complications. So in case you in case there is a rice seller who wants whet, he would just find the wheat seller and exchange the same. This therefore involves no complications and trade can be carried in a simple way.
2. No question of over or under production
The reason for this is that goods are services are just to meant to meet the needs of the society.
3. Problems of foreign international trade do not arise
Under this system the many of problems of international trade like that of foreign exchange, balance of payments, etc.
4. With this system there was no problem of concentration of economic power
The barter system also ensured that there was no concentration of economic power. The reason for this is that there is no possibility to storing the commodities.
Disadvantages of the Barter System
1. It requires Double Coincidence of wants
In the barter system since there is no common medium of exchange, there must be double coincidence of wants. Thus trade or exchange as a result of this may often may not be possible in many cases.
2. There is lack of divisibility
Another difficulty of barter system relates to the fact that all goods cannot be divided and subdivided. In such cases the people who own them may not be able to exchange them effectively to satisfy his or her need.
3. There is a problem of storing wealth
With the barter system, there is much difficulty in storing wealth. This is more so in case of perishable commodities. This becomes a problem and systems of exchange which allows for holding a generalized purchasing power in the form of money becomes a distinct advantage in them.
4. System of deferred payment is not possible
The barter system does not provide a satisfactory unit in terms of which the contracts about the deferred or future payments. In an exchange economy, many contracts relate to future activities and future payments. SO this becomes a serious disadvantage for barter system on this ground as wel
WITH WHAT YOU HAVE LEARNT ABOUT MONEY WRITE A LETTER TO A FRIEND TELLING HIM OR HER WHAT YOU LEARNT IN CLASS TODAY.
PLEASE NOTE NO MORE THAN 250 WORDS NO LESS THAN 180.
In conclusion we can say that the barter system has both advantages and disadvantages. However in spite of its advantages it has been replaced by money being the main mode of exchanges in most world economies