Disadvantages of barter trade, Managerial Economics

Disadvantages of Barter Trade

  • It is impossible to barter unless A has what B wants, and A wants what B has. This is called double coincidence of wants and is difficult to fulfill in practice.
  • Even when each party wants what the other has, it does not follow they can agree on a fair exchange. A good deal of time can be wasted sorting out equations of value.
  • The indivisibility of large items is another problem. For instance if a cow is worth two sacks of wheat, what is one sack of wheat worth? Once again we may need to carry over part of the transaction to a later period of time.
  • It is possible to confuse the use value and exchange value of goods and services in a barter economy. Such a confusion precludes a rational allocation of resources and promotion of economic efficiency.
  • When exchange takes place over time in an economy, it is necessary to store goods for future exchange. If such goods are perishable by nature, then the system will break down.
  • The development of industrial economies usually depends on a division of labour, specialization and allocation of resources on the basis of choices and preferences. Economic efficiency is achieved by economizing on the use of the most scarce resources. Without a common medium of exchange and a common unit of account which is acceptable to both consumers and producers, it is very difficult to achieve an efficient allocation of resources to satisfy consumer preferences.

For these reasons the barter system is discarded by societies which develop beyond autarky to more specialized methods of production.  For such peoples a money system is essential.

Money may be defined as anything generally acceptable in the settlement of debts.

Posted Date: 11/28/2012 6:50:39 AM | Location : United States







Related Discussions:- Disadvantages of barter trade, Assignment Help, Ask Question on Disadvantages of barter trade, Get Answer, Expert's Help, Disadvantages of barter trade Discussions

Write discussion on Disadvantages of barter trade
Your posts are moderated
Related Questions
The Microeconomic objectives of government These are the policies which are concerned with the allocation and distribution of resources to maximize social welfare. 1. Allo

Q. Explain about Transaction Cost Theory? The below model reveals market and institutions as a possible form of organisation to coordinate economic transactions. When external

How we can measure Elasticity of demand Though a manager requires an exact measure of this relationship for appropriate business decisions. Elasticity of demand is a measure t

The computer graphics chip industry is one with a little number of competitors that earn normal economic profit. Two chip manufacturers, NVIDIA and ATI both face the prospect of lo

Explain the theory of production, Managerial Economics Explain the Theory of Production

Q. Availability of Substitutes - Determinants of Demand? One of the most important determinants of elasticity of demand for a commodity is availability of its substitutes. Clos

Bank Rate Bank rate is the rate at which the central bank gives loans to the commercial banks against the security of government and other approved first class securities. In

Problem 1: All economies of the world can be said to be ‘mixed', to a greater or lesser degree, in that there is no economy where there is no state activity and no economy wher

Blowing Safety Co. P/L manufactures safety parachutes for the airline industry. These are sold directly to the airline companies. Management expects to manufacture and sell around

Q. Characteristics of perfect competition market? Following are the characteristics of perfect competition market:  • Large Number of Sellers andBuyers: As there are a lar