Limitations of Barter System

Limitations of Barter System

Limitations of barter system can be explained in terms of limited good, limited population, market lacking, storage issues, lack of standard value, lack of credit transaction.

1.    Limited Goods Concept

Barter system was only effective for limited goods & limited wants. This system could not serve for large number of goods (variety of Goods), because barter system it is difficult to determine the value of goods.

2.    Limited Population

Barter system was only applicable for small population, where people are producing goods as per the requirements and as per exact demand of user. Barter system supports only demand based production and excess production may result in total loss, therefore barter system is only valid for limited population.

3.    Lack of Market

Barter system does not support the free market concept; rather it is based on the intensity of wants & negotiation between parties. In barter system there is no standardization (Lack of Standard products), therefore a market cannot be created for those Product (Products Lack standardization).

4.    Storage Issue

In Barter system goods served as medium of exchange and therefore a reasonable quantity is required to be store for future transaction. However, it is technically not possible to store goods for too long, especially perishable goods.

5.    Lack of Standard Value

In barter system standard price or value of goods cannot be determined, because valued depends on intensity of demand, which vary customer to customer. For example wheat may be exchanged with cloths, Gold, sugar and value of wheat will be determined by intensity of demand for Gold, sugar etc.

6.    Credit & Advance Transaction Difficulty

In barter system credit transaction was difficult, because there is no mechanism for determining the value of goods in barter system and value is depends on the current intensity of demand.