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Q.

Which one of the following is not a limitation of the barter system?


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a

Lack of double coincidence of wants

b

Certain products can’t be divided

c

Most often, double coincidence of wants is not available

d

None of the above 

answer is D.

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Detailed Solution

None of the above is the limitation of the barter system. The barter system of exchange refers to the direct exchange of goods for goods without the involvement of money. Several limitations are associated with such an exchange, including a lack of double coincidence of wants and divisibility. For a barter exchange to occur, there must be a double coincidence of wants between the parties to the transaction, i.e., both the parties should be able and willing to demand and supply what the other party can supply and demand, respectively. However, it is challenging to come across such a situation. Also, the commodities exchanged in the barter system are not divisible. For instance, it is impossible to exchange cattle for one kg of wheat because of the absence of divisibility. Money does away with these limitations by serving as a widely accepted medium of exchange. There are various denominations of money in the economy, making all kinds of transactions possible.
 
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