![]() I felt I need to write about the high cost involved in this issue and identified these costs as transaction costs that unnecessarily become a burden to taxpayers.Īs the investigations transpire, and while concerned government agencies are hot on the heels of the alleged perpetrators of misused government funds, costs are incurred. As the controversy rages on, lots of energies are expended to pursue the case. The original transaction involves the misuse of public funds, which can be equated to a business’s failed market transaction. Let me expand the discussion on this subject to cover a controversial issue: the politics of the resource allocation I wrote about. A Case of Hidden Transaction Costs in Misuse of Public Fundsīased on the definitions provided above, transaction cost may be defined as the costs incurred in the instance of doing business. They forget the cost in time ( opportunity cost), effort (all those energies equate to calories of energy from food to power the walk), and transportation cost to make to obtain the cheapest goods in town. Typically, these people tend to spend a lot of time haggling the prices of goods with the vendor whenever possible, walk around in circles trying to find the lowest price of a pair of shoes, dress, jewelry, among others. You need to make an effort and spend for it.īudget-conscious individuals tend to overlook this cost which if examined closely, tend to do things in a more costly way. ![]() This simple example illustrate that aside from the price of the banana itself, you spend time, energy, and effort to find the banana that you prefer, expend energy in trying to bring down the cost of banana or even spend time in a queue if banana is scarce while in the market, and finally spending for transport and ensuring that the banana arrives from the market to your home.Īll of these are transaction costs in buying a banana. Hence, there are costs associated with search, bargaining, and transporting the banana to your home. You search for the banana that you want in the market, make a bargain on the price, and eventually bring the banana home. If you live in an urban area (unless you grow the banana yourself in the middle of the city), there are costs involved. The commission paid to the brokers by the buyers and sellers make up the transaction cost. In trading of goods, intermediaries or stock brokers facilitate the transaction between the buyers and sellers of investment tools like stocks, bonds, and mutual funds. ’s provides examples to illustrate the meaning of transaction cost as follows: 1. Two Examples to Illustrate the Meaning of Transaction Cost Negotiation cost is the cost associated with forge an agreement on the terms of exchange, and enforcement cost is the cost of enforcing the contract. Search cost is the cost incurred in locating information for a possible exchange. Components of Transaction Costīased on textbook definition, lists the transaction cost components into ![]() Quick examples include communication charges, legal fees, informational cost of finding the price, quality, durability, and transport cost. Market imperfections refer to the inefficient allocation of goods. The Meaning of Transaction CostĪccording to the Business Dictionary, a transaction cost is associated with exchanging goods or services and incurred in overcoming market imperfections. Korolyova devoted a paper in an attempt to explain it. Incurring unnecessary expenses can be avoided through ways that I will explain in this article.īut what is the meaning of transaction cost? If you search the internet to define this concept, you will notice no consensus on what it means. People tend to overlook the significance of transaction costs hence incur expenses. When controversy arises due to faulty transactions or market failures, the cost associated with it is usually unaccounted for or underestimated. This article explores the meaning of transaction cost and clarifies this concept by understanding how one’s actions can affect a significant number of people. This situation is referred to as transaction cost. The resolution of unfair distribution of wealth entails cost.
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