What are transaction costs? What are some ways in which society reduces transaction costs?
What will be an ideal response?
Transaction costs are costs associated with exchanging goods and services. They include information costs associated with finding out price, quality, and other characteristics of the good and the other party in the exchange, and costs of contracting and enforcing the contract. Organized markets, retail stores and shopping malls, advertising, and middlemen are several institutions that have developed to reduce transaction costs.
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A student wrote: "When the average product of labor exceeds the marginal product, the marginal product is increasing." If you were the instructor, how would you correct this statement?
What will be an ideal response?
In 1975 a pocket calculator cost more than $50; in 1990 a calculator of the same quality cost less than $10 . Which of the following explanations is most consistent with these facts? a. Intense competition in the calculator industry caused the supply curve for calculators to shift to the left, depressing the price. b. An increase in the demand for calculators led to the price drop
c. An improvement in technology caused the supply of calculators to increase, depressing their price. d. As the population grew, fewer expensive calculators were needed, causing prices to fall.