Barter economy means the exchange of commodities. It consists if a bargain of commodity with the other with out the help of another of exchange, such as money. Therefore we can say that buying goods against goods is called barter system.
The barter system can easily be understood with the help of the following example. Suppose Mr. A is a farmer and produces wheat in his fields. When the crop is ready A finds that he can stock as much wheat as his family need for the whole year and still he will have a surplus which he can use for exchange purpose. Now he has to get his plough repaired through a carpenter. After availing the services of the carpenter, Mr. A makes him the payment in the form of wheat in exchange of his services. Again Mr. A wants to purchase cloth and goes to merchant’s shop. Here he exchanges the desired quantity of cloth with surplus wheat. Thus the process will keep on continuing and the needs and wants will be satisfied by making use of any commodity as the medium of exchange.