Meaning of barter exchange
Before explaining the importance of barter exchange, it is important for people to understand the exact meaning of this term in order to understand the rationale behind this concept. This term implies that instead of people money in exchange of any good, the person exchanges a certain good in order to get hold of the product that the other person might be offering. Before the introduction of currencies, there used to be only the system that allowed people to make transactions with each other. This means that if a person had something of greater value than the other person, then the other person had to provide the person with more of the same good or if the person agrees, variety of goods until the value of the combined goods equate that which the first person has. For example, it is not possible or profitable to exchange a cow with a loaf of bread hence the person with the loaf of bread needed to add several loaves until the value is equal to that of cow. This also reveals that barter system is not that easy of the goods that need to be exchanged is different in nature.
How does this system work successfully?
For this system to work smoothly, it should be ensured that the values of goods are evaluated in an approximate manner so that both parties are satisfied that they are able to get hold of a good in exchange of something, which is also similar in worth. If people are willing to exchange a similar good with other person, then this does not make sense to do this until and unless the value of one good might still be different from the other. For example, it does not make sense for a person to exchange a pen with a pen from another person until and unless the features of the other pen are more appealing to the other person i.e. its color, design or brand etc. Moreover, for this system to work in a successful manner, both the parties should be willing and able to exchange the goods that they have for the good that they want to have. This might create problems because it is difficult to find a person who has the exact good that the other person might want and even more unlikely that the person will be willing to swap it with something that the other person has.