Bartering

Bartering

Introduction

Bartering is basically trading. in the old days when there was no money, people use to trade goods or services.

example 1:
a cobbler trades a pair of footwear for some food(good) from a farmer.

example 2:
this time a farmer trades food for a haircut(service).

 

Advantages of bartering

1. It is a simple system free from the complicated difficulties of the modern commercial system
2. The difficulties of international trade, like the foreign exchange pressure and conflicting balance of payments, do not exist in the barter system.
3. Personal and natural resources are perfectly appropriated to meet the necessities of society without requiring any wastage.

Disadvantages of bartering

1. Double coincidence principle
   Both parties should want the other party’s goods or services.
2. The value of goods maybe not equal to the other amount of goods
   example…                                                                                                                            a pair of slippers for a gallon of milk is a loss for the milk seller or a pair of slippers for a haircut is a loss for the cobbler.