Disadvantages of barter system

len Alfred Ajibola - 26th July, 2023 @ 12:52 PM

Topics in Commerce

Historical background of commerce in Nigeria Disadvantages of barter system Contract of Employment: Terms of employment contract Principle of Marketing: People as a marketing mix and their importance Principle of Marketing: Positioning as a marketing mix Principle of Marketing: Packaging as a marketing mix Elements of promotion in marketing mix Principle of Marketing: Promotion as a marketing mix Principle of Marketing: Place as a marketing mix Principle of Marketing: Price as a marketing mix Principles of Marketing: The seven principles of marketing mix Factors necessary for division of labour Disadvantages of division of labour Advantages of division of labour Concept of Outbound Marketing Inbound Marketing explained Types of production in commerce Commerce: Definitions and Scopes of Commerce Differences between balance of trade and balance of payments Balance of payment deficit and balance of payment surplus

Academic Questions in Commerce

Please click here to see all Questions and Answers

In commerce, the concept of paying in advanced is termed _____.

  • A. Advanced payment

  • B. Up payment

  • C. Forward payment

  • D. Prepayment

  • E. Uphill payment

  • F. Adpayment

In commerce, the concept of 'buy now, pay later' is termed _____.

  • A. Unadventurous payment

  • B. Buy on credit payment

  • C. Deferred payment

  • D. Postponed payment

  • E. Owed payment

  • F. Future payment

In commerce, which of the following is false with regards to a commodity?

  • A. A commodity must always have a market value

  • B. Rendered services are also instances of commodities

  • C. Products applicable to commodities can be bought or sold with money

  • D. A commodity must be standardized

  • E. A commodity must be usable upon delivery

  • F. Commodities can be traded in the futures market

Whatever is being marketed must always provide value to its potential consumers.

  • A. True

  • B. False

Which of the following is not a branch of marketing?

  • A. Merchandising

  • B. Promotions

  • C. Forex

  • D. Search Media Optimization

  • E. Social Media Optimization

  • F. Copywriting

Which of the following is not a characteristics of commerce?

  • A. The only aim of commerce is to make profit

  • B. It is a discontinuous process after profit had been made

  • C. It is accompanied with challenges and uncertainties

  • D. It is 100% business and economic activity

  • E. Transaction processes are always involved in commerce

  • F. It connects the process of production and marketing

Which of the following is not a function of commerce?

  • A. Unnecessary in times of emergencies like earthquakes and wars

  • B. Facilitates mass production of goods

  • C. Influences transportation network within and outside a state

  • D. Attempts to satisfy human needs and wants

  • E. Improves the standard of living

  • F. Acts as an online business link between buyers and sellers

One of the following is a form of division of labour.

  • A. Agonistic division of labour
  • B. Antagonistic division of labour
  • C. Mutualistic division of Labour
  • D. Advanced division of labour
  • E. Solitary division of labour
  • F. Occupational division of labour

Barter System:

The barter system, also termed 'trade by barter' or simply 'bartering' refers to the trading of goods and services without the use of money, debit cards, credit cards or another monetary medium. It is often considered as the first form of commercial activity on earth.

You can read on debit and credit cards here.


In today's world, individuals and organizations can also barter goods and services between each other. However, this will be likely based on an equivalence of their estimated prices.

Please read on the historical background of commerce in Nigeria here.


Note: The principle of bartering is always narrowed down to the relative value of goods and services to be traded, alongside the negotiating power of the individuals or organizations involved.

Please read of the functions and characteristics of commerce here.


An instance of the barter system is seen when a farmer in need of garri trades his farm produce (let's say vegetables) with another individual who has garri. In this regard, the exchange (bartering) will be made without any monetary medium. This is shown in the image below.
Trade by Barter - Len Academy


Meanwhile, understand that services may also be exchanged with goods in the barter system.


Disadvantages of Barter System

The barter system have got various advantages to the trading partners. However, it also has its limitations or disadvantages.

Please read on the disadvantages of money here.

Below are the disadvantages of the barter system.


  1. In the barter system, the value of whatever is traded cannot be measured to a common standard. Since this is the case in bartering, the rate of exchange will become dependent on the level of demand for the traded goods (or services). Consequently, the quality or quantity of whatever is traded will become arbitrarily fixed, and this will likely tilt towards the gain of one trader, and detriment of the other. This reason also explains why accountability is quite difficult in the barter system since a profit and loss account cannot be implemented through it.
    Please read on bookkeeping and accounting here.

  2. Issues of double coincidence of wants may persist. This implies that the chances of getting a person who is in need of one's goods (or services) and vice versa can be quite slim. In an eventual coincidental meeting of two persons willing to exchange goods or services, the rate of exchange will be arbitrarily fixed according to the willingness and level of demand for each other’s goods.

  3. Certain goods may prove difficult to divide, thus finding their equivalent can become somewhat difficult in the barter system. As an instance, a person who own goats may be in need of a cattle. If he eventually finds someone willing to trade with him, the issue that arises here is that the latter (cattle owner) may demand six goats for his cattle, while the former only intends to give five goats for a cattle. If it was possible that one of the goats could be divided into half, then trading five and half goats to a cattle could perhaps be a mutual and satisfactory agreement between both traders.
    You can read on the principles of marketing here.

  4. Economic progression is minimal from a lack of specialization in bartering. This is true since everyone may indulge in a variety of works in order to meet up with their needs. Now, juxtaposed with the fact that dedicated industries are lacking in the barter system, a lack of high quality goods and services may become absent in the economy.
    Please read the concept of division of labour here.

  5. Deferred payment is usually not practiced in the barter system. You can think of deferred payment as the 'buy now, pay later' kind of business transaction.
    Please read more on deferred payment here.

  6. Stored goods will lose value in the barter system, thus making the storage of wealth somewhat difficult. This is true because the storage of commodities can prove quite expensive, coupled with the fact that their value may still become detoriated, while others may have expiration tendencies. Therefore, unlike money, perishable goods will become difficult to store. As an instance, the storage of tomatoes, fruits and vegetables (to be traded through the barter system) can result into significant losses since price inflation is absent in bartering.
    Please read on the advantages of inflation here.

  7. Price inflation isn't pronounced in battering. Assuming goods are properly stored in the barter system, such storage will be of little significance since there is usually no increase in the price of goods and services. With regards to trade by barter, negotiations are based on the intensity of needs by the traders.
    You can read on scale of preference and opportunity cost here.

  8. Precious time and effort may become wasted through the barter system.

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Notable points in Commerce

The theory of international trade is guided by the principle of comparative cost. This principle was propounded by David Richards.

The principle of comparative cost states that a country should specialize in the production of goods and services in which they have a greater comparative advantage or the least comparative disadvantage.

Below is an instance on the principle of comparative cost.

Now, let us assume we have two countries producing and exporting rice and beans respectively.

  • On a daily basis, If country A produces 100 grams of rice and 300 grams of beans daily and country B produces 50 grams of rice and 150 grams of beans, then according to this principle, country A has an advantage over country B with regards rice and beans production; but better still, country A has a greater comparative advantage in the production of beans.


From the above instance, it can also be said that country B is at a disadvantage with regards to the production of rice and beans. Infact, it has a bigger comparative disadvantage with regards to beans production.

The point to note here is this: A country utilizing the principle of comparative cost will always produce quality goods and services at a cheaper cost.

No single country manufactures all the goods and services in our world. This implies that every country of the world relies on certain goods and services imported (or brought in) from other countries.

Foreign trade is defined as the exchange of goods, services and capital between two or more countries.

Foreign trade is also termed as international trade.

Please read more on foreign trade here

Division of labour can be defined as the act of splitting job process into a number of different processes such that each process is done by a different person or group of persons.

Through the process of division of labour, one worker may constantly perform a specific aspect of the job and as a result, may become specialized in that area.

The result of specialization in the different department of a job will imply the production of goods with better quality.

Please read on division of labour here

Forms of division of labour relates the various ways through which division of labour may be carried out.

Take for instance, within a country, one state may choose to specialize in the production of a cars while another specializes in a different area, let's say agriculture.

Below are the forms of division of labour

  • Complex division of labour

  • Occupational division of labour

  • Geographical division of labour


Please read more on the forms of division of labour here.

Balance of Trade can be defined as the total value of goods imported and exported by a country during a specific period; usually yearly or annually.

Balance of trade can be either positive, negative or zero

  • A positive balance of trade implies that a country exports more goods than its imports. China as a country is likely to have a positive balance of trade since it exports a variety of goods to other countries.

  • A negative balance of trade is often considered as an unfavorable balance of trade since the country's importation exceeds its exportation. Nigeria (as at 2018) is likely to have a negative balance of trade.

  • A zero balance of trade is reached when imports equal exports.

Please read on balance of trade and balance of payments here.