Barter system has the defect of
- Goods exchanged are of inferior quality
- Goods cannot be exchanged for services
- Lack of common measure of value
- None of the above
Correct answer: Lack of common measure of value
The correct answer is (c) “Lack of common measure of value.” The barter system, while being an ancient form of trade, suffers from the major defect of lacking a common measure of value. A barter system is one in which goods and services are exchanged directly without using money. It is hard to determine the relative worth of different commodities in the absence of a common measure of value, thereby hindering the exchange process.
In a monetary system, money serves as a common measure of value, allowing individuals to easily compare the worth of different goods and services. By determining the value of a book and a bag of rice in terms of a common unit of currency. A person is able to make an easier exchange.
In the barter system, individuals would have to assess the relative value of the items being traded on a subjective basis if there were no common measure of value. It can result in inefficient and time-consuming transactions, since parties may perceive value differently, making it difficult to reach mutually beneficial agreements.
Why the other options are not correct
a. Goods exchanged are of inferior quality
It is incorrect to say that the goods exchanged in a barter system are of inferior quality. The quality of the goods exchanged in a barter system is not directly correlated with the system as a whole. No matter whether the exchange is barter or monetary. The quality of goods depends on the participants and the goods being exchanged. Regardless of the system, individuals will trade goods they find useful or valuable.
b. Goods cannot be exchanged for services:
This option is also incorrect. A barter system allows for the exchange of goods for services, and vice versa. Barter systems were prevalent in ancient societies where goods were exchanged for services. In exchange for the blacksmith’s help in crafting tools or equipment. A farmer could exchange a portion of their crop with him.
d. None of the above:
This option is incorrect because option (c) accurately describes a significant defect of the barter system, which is the absence of a common measure of value. Though these options highlight certain problems or challenges in a barter system, they do not constitute fundamental defects in the system.
There is a major flaw in the barter system: the lack of a common measure of value. Without a common medium of exchange, it is difficult to determine the relative worth of goods and services. While the barter system served as an essential mode of trade in ancient societies.
The introduction of money and monetary systems has significantly improved the efficiency of exchanges and contributed to the development of modern economies. Money’s role and significance in facilitating trade and commerce can only be appreciated when we understand its limitations.