Answer:
The barter system is an economic system in which goods and services are exchanged directly without the use of money. In a barter system, individuals or entities trade one good or service for another based on their mutual needs and preferences.
Major difficulties of the barter system include:
- Lack of Double Coincidence of Wants: For a barter exchange to occur, both parties involved must have what the other party desires. It can be challenging to find someone who has what you want and is willing to trade for what you have.
- Difficulty in Pricing: In a barter system, there is no standard unit of exchange like money, making it difficult to establish a common measure of value. Negotiating the relative value of goods and services can lead to disagreements and inefficiencies.
- Lack of Divisibility: Some goods and services may not be easily divisible, making it challenging to exchange them in smaller quantities. This can limit the flexibility and efficiency of transactions.
- Storage and Perishability: Certain goods, such as agricultural produce or perishable items, may have a limited shelf life. This poses challenges in preserving and storing these goods for future exchanges, leading to potential wastage.
- Limited Scope of Trade: The barter system restricts trade to only those goods or services that each party directly needs or desires. It inhibits the development of a complex market economy and specialization, which are crucial for economic growth.
- Lack of Standardization: In a barter system, there may be variations in the quality and characteristics of goods being exchanged, leading to disputes and difficulties in establishing fair exchanges.
- Absence of Deferred Payments: Barter transactions are typically immediate exchanges, and there is no provision for credit or deferred payments. This can limit economic activities that require longer-term arrangements or investment.