Limitations of Barter System

Limitations of Barter System

Limitation of barter system has been explained below;

1.    Only Essential Goods are Produced

In barter system only essential and limited goods are produced, only those goods are produced which have a wide and known or established demand. There is no market for luxury goods in the barter system due to low demand.

2.    Effective for Limited Population

Barter system can work only for a limited or small population. This system work in a well integrated society, where every person knows the demand of the society and thus can effectively plan its production.

3.    No Market Dynamics

In barter system market dynamics of demand and supply cannot work properly, rather barter system based on intensity of demand & negotiation between interested parties. One of the main reasons of market lacking is lack of standard goods.

4.    Storage Issues

In barter system value is stored in goods, but many goods are perishable in nature and cannot be stored for a long period, moreover, storage also requires a huge space. Therefore storage of goods is one of the main limitations of barter system.

5.    No Standard Price & Value

There is no standard price concept in the barter system , furthermore barter system does not support any pricing concept, good are being exchange for different goods, and thus  determining the standard  price of goods nearly impossible in barter system.

6.    Credit Transaction not supported

Barter system does not support the credit transaction, because it is very difficult to establish future value of good, even establishment the current value of goods is difficult task in the barter system. Thus there is no concept of future transaction in barter system.