Why aren't all economic transactions conducted through markets?
What will be an ideal response?
Market transactions are costly. Hence sometimes nonmarket transactions are better. The high cost of market transactions can be accounted to the presence of firm-specific assets, costs of measuring quality, externalities, and coordination problems. Assets that are substantially more valuable in their current use than in their next best alternative use are referred to as firm-specific assets. Quality is easily observable only after delivery. Free-riding by the distributors is an example of externalities. Coordination between different units regarding production, distribution and pricing is difficult.
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The quantity of money demanded to satisfy transactions needs:
a. is intended for unexpected expenditures. b. increases with the level of real GDP. c. decreases with the level of real GDP. d. is unrelated to either national income or the interest rate. e. varies inversely with the liquidity demand for money.
An increase in the expected future price of a good will cause the current demand for the good to
a. decrease, which is a shift to the left of the demand curve. b. decrease, which is a shift to the right of the demand curve. c. increase, which is a shift to the left of the demand curve. d. increase, which is a shift to the right of the demand curve.