The correct option is 1 and 3 only.
Explanation
The Barter System is an economic arrangement where goods and services are traded directly for other goods and services without the use of a medium of exchange like money. It is often characterized as a C-C (Commodity-for-Commodity) economy.
Statement-wise Analysis:
- Statement 1 is Correct: The fundamental definition of a barter system is the direct exchange of goods for goods. For example, a farmer exchanging wheat directly for shoes from a cobbler without using cash.
- Statement 2 is Incorrect: The barter system requires a double coincidence of wants. This means that for a transaction to occur, Person A must want what Person B has, and Person B must simultaneously want what Person A has. It is the introduction of money that eliminates this necessity by acting as a generally accepted medium of exchange.
- Statement 3 is Correct: Due to the requirement of a double coincidence of wants, individuals must spend significant time and resources finding a suitable trading partner. In a large and complex economy, these search costs (transaction costs) become extremely high, making the system inefficient compared to a monetary economy.
Key Takeaway:
The primary inefficiency of the barter system is the necessity for a double coincidence of wants, which leads to high search costs; money solves this by serving as a universal medium of exchange.