In traditional communities, people produced various goods and services which they would exchange for other goods and services which they did not have. some communities exchanged salt for food crops while
Barter trade refers to the exchange of goods and services for other goods and services.
Advantages of Barter trade
- It promotes social relations among the trading communities since these communities get to interact while engaging in trade
- Through barter trade, a community or country is able to dispose of its surplus produce
- Barter trade promotes specialization in the production of goods and services
- Barter trade promotes the standards of living of people involved in it as opposed to direct production
- In barter trade buyers and sellers are able to get the goods and services they require immediately after the exchange
Disadvantages of Barter trade
- Barter trade requires a double coincidence of wants this means that there must be somebody who has exactly what you want and she/he wants what you have. in real life, that situation is hard to find.
- Barter trade hinders specialization due to a lack of double coincidence of wants people tend to produce all goods and services that they require.
- There is an inconvenience in transporting some goods especially bulky goods for a trader such as a building which cannot be moved.
- It is difficult to determine how much of a commodity can be exchanged for another for example Peter has a cow and wants fish, but it is difficult to determine how much fish to exchange for a cow.
- Barter trade lacks a standard for deferred payment, where payments are made in the future use of goods and services for payment can be difficult because by the time the payment is made either the needs of the person have changed or the goods have gone stale.
- Indivisibility of some commodities cannot be divided into smaller units without loss of value for example if you have a goat and you need one tin of millet, you cannot divide the goat into pieces.
- Where barter trade is used it is difficult to assess the values of different commodities and keep their record. this is due to a lack of unit of account.
- Perishability of commodities, some commodities cannot be stored for a long period to be used in future unless stored in special facilities for example agricultural products like vegetables, milk and fruit hence lacking a store of value.