Pros and Cons of Barter Trade

Barter trade is a system of exchange where the participants in transactions directly exchange goods or services for other goods or services without using a medium of exchange such as money.

It requires a double coincidence of wants as it involves the exchange of goods or services. It does not use money as a medium of exchange. It works well among the uncivilized communities as they do not value money.

Pros and Cons of Barter Trade
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Pros of Barter Trade

  1. Builds a strong working network

When people come together to exchange goods or services they will build a strong working network that will exist for long as a result of trade.

  1. It is the simplest approach

When the two parties can solve each other’s needs then it is the most preferred means as they will come together and exchange the goods or services directly.

  1. Good when one party does not need the commodity anymore

There is a situation whereby one party may not need the commodity again hence becomes easier to dispose of it by exchanging with a commodity that is much in need.

  1. No tax is imposed on the goods

When the goods are exchanged the parties will not pay for tax on the goods hence the parties can evade tax on the goods.

  1. The resources are perfectly utilized

The goods are used by one party then handed over to another hence utilized completely to avoid wastage.

  1. Improves creativity

Barter system enables the parties to improve on their creativity whereby they need to master the skills that are used in the exchange of goods and services without necessarily using money.

  1. It grows business skills

The parties involved can grow business skills such as negotiating hence can use the skills later in the field of business where the money is involved.

Cons of Barter Trade

  1. Limited to find the right person

At some time it may be difficult to find the right person who needs the goods or services then hence it becomes a problem to exchange the good to get the required one.

  1. Complications with high-value barters

As no tax is imposed on the goods high-value barters may dispose of the good at a very high price if it were a monetary system hence taking advantage of the situation.

  1. They have to be in person

Barters have to be physically present for them to negotiate over the value of the good with the other party hence it cannot be possible for another person to trade on behalf of the barter himself.

  1. No standard method of implementation

There are no standards of implementation hence this may make one party run at a loss.

  1. Indivisibility problem

Some goods cannot be divided hence the owner is forced to dispose of it wholly making a loss from the trade.

  1. Difficulty in making deferred payments

It is difficult for someone to make deferred payments as the goods are to be exchanged there and then.

  1. No measure of value

The parties involved cannot be able to measure the value of the goods hence they are forced to exchange the goods without necessarily knowing the value of the goods.

Summary

Barter trade system used to work a well a long time ago because a lot of communities did not know about money well. With formal education, people are well versed with money hence they still do not practice the barter trade systems as it had more disadvantages. Nowadays the monetary system is commonly used as a medium of exchange.

 

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