Business, Legal & Accounting Glossary
A barter system calls for the exchange of goods and services for other types of goods and services.
This system was prevalent in earlier times when currency was not yet in place. Later, the barter system was replaced by the monetary exchange of goods.
In developed countries, this system exists alongside the monetary system. The barter system was used in primitive times. It facilitated a division of labour that was not restricted to a family or clan. According to economists, one of the prerequisites for the barter system is “double coincidence of wants”. In a developing economy, the division of labour is much more complicated and the productive roles highly specific. A large number of items are produced. In such a state, the barter system becomes cumbrous. Therefore, replacing the barter system with the monetary exchange system is a must in modern times.
Division of Labor leads to specialization and increasing efficiency with the factor of production.
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This glossary post was last updated: 26th March, 2020 | 32 Views.