(a) What is trade by barter? (b) Highlight the problems posed by trade by barter.

Answer Details

(a) Trade by barter is the direct exchange of goods and services for other goods and services without the use of money. One person gives what he has in exchange for what he needs directly from another person, for example exchanging yams for cloth.

(b) Problems posed by trade by barter:

• Lack of double coincidence of wants: Exchange occurs only when each party has exactly what the other wants and wants exactly what the other has, which is difficult to achieve.
• Indivisibility of some goods: Goods such as a cow or a house cannot be split into small units to match the value of what is wanted in exchange.
• Absence of a common measure of value: There is no single yardstick for expressing the worth of goods, making it hard to fix rates of exchange.
• Difficulty in storing value: Wealth held as goods (especially perishables) deteriorates and cannot be stored for the future.
• Difficulty in deferred/future payments: Lending and repayment are hard because of disputes over the quality and quantity of goods to be returned later. (Bulkiness and problems of transporting goods for exchange are additional difficulties.)