Which of the following is a problem of trade by barter?
Answer Details
The problem with trade by barter is the difficulty in determining fair exchange rates for goods and services. Unlike in a monetary economy where the value of goods and services is determined by a common currency, in a barter system, the value of goods and services is subjective and can vary between traders.
For example, a farmer may need a new plow and offer to trade some of his crops for it. However, the person with the plow may value the crops differently than the farmer, leading to a disagreement over the fair exchange rate. This can result in a breakdown in trade and limit the potential benefits of trade.
In addition, barter systems may also suffer from issues such as hoarding and limited specialization. Without a common currency, individuals may hoard goods in anticipation of future needs, leading to inefficient allocation of resources. Also, without specialization, individuals may lack the expertise to produce certain goods or services, limiting the potential gains from trade.
Overall, the problem with trade by barter is the difficulty in determining fair exchange rates, which can limit the potential benefits of trade and lead to inefficient allocation of resources.