PRINCIPLES OF BUSINESS 

The Barter System

During ancient times people exchanged goods and services for other goods and services without the use of money. This is called Barter. For example, a farmer may trade a bag of potatoes for a few fish. In the middle ages Europeans traveled around the globe to barter crafts and furs in exchange for silks and perfumes. The advantages to barter is that each person could use his skill or personal possessions as a medium of exchange. This meant that each persons had wealth in one form or another. Countertrade is a modern form of barter where goods and services are exchanged internationally.

 

 

 

 

 

 

 

 

 

 

Disadvantages of Barter

  1. Lack of Double Coincidence of Wants: In order to obtain a particular good or service from a someone, one has to possess a good or service of equal value, which that person also desires. E.g. If Malika has mangoes which she wants to exchange for eggs, she must first find someone who has eggs and wants mangoes in return.

 

   2. Lack of Unit of Measure: It is difficult to fix rates of exchange acceptable to each person. E.g. How many eggs should I give you for a bag of rice?

 

   3. Indivisibility: Even if a rate of exchange is agreed upon, some goods are not easy to divide into fair parts.

 

   4. Transportation Issues. Some goods and bulky and heavy. E.g. transporting a large sack of potatoes 6 miles on foot to exchange for 65 clay bricks.

   

   5. Non-Durability: Some products are perishable and cannot be stored for long periods of time. E.g. If a single man exchanged his axe head for a large piece of meat, he must eat it almost immediately as it would spoil the next day.