Questions On Transaction Cost Economics - 1526 Words

2.1. Transaction cost economics Unlike the production costs, which reflect the transformation of inputs into outputs, transaction costs refer to the costs of carrying out any exchange, whether between firms in a marketplace or a transfer of resources between stages in a vertically integrated firm (Basu, 2014; Hobbs, 1996). In terms of effect, transaction costs can be divided into three categories: information costs, negotiation costs, and monitoring (or enforcement) costs (Hobbs, 1996). Specifically, information costs include costs associated with gathering and exchanging information about products, prices, suppliers or buyers etc.. Negotiation costs generally arise from activities related to the physical act of the transaction, such as negotiating and writing contracts (e.g. cost of hiring lawyers), or intermediary services of the transaction (e.g. payment for auctioneer or a broker). Monitoring or enforcement costs occur after the transaction which usually involves costs of monitoring supplier’s performanc e and the quality of goods provided, or costs of legally enforcing promises on the contract. The primary factors which cause transaction costs to arise include bounded rationality, opportunism, small numbers bargaining, and information impactedness. Among the four main factors, bounded rationality and opportunism are two key behavioral assumptions characterize TCE theory. Bounded rationality means that although decision-makers may intend to act rationally, their abilityShow MoreRelatedQuiz 11444 Words   |  6 PagesECO 550 Week 2 Quiz 1 Click this link to get the tutorial: http://homeworkfox.com/tutorials/economics/4259/eco-550-week-2-quiz-1/ Question 1 1.   When multiple facts about a sample set are known, a(n) _____ heuristic makes the choice on the basis of the first category of facts in which the samples differ. elimination representative recognition availability Question 2 1.   Which of the following products can be sold through mass advertising? A new electrocardiogram machine to be used by medicalRead MoreEco 550 Quiz 1 Chapter 1 21442 Words   |  6 PagesQuestion 1 1. When multiple facts about a sample set are known, a(n) _____ heuristic makes the choice on the basis of the first category of facts in which the samples differ. elimination representative recognition availability Question 2 1. 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By reading the Theorem, one can see that Coase was focused on externalities and how they are regulated (Economic, n.d.). His Theorem said, in effect, that trade with no transaction costs will provide an outcome that is efficient, regardless of property rights Coase, 1960). If property rights are not defined, however, Coasian