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by Anonymous on February 17th, 2007

Anonymous

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Help answer this question below.

High transaction's costs are reflected in ?
a. narrow bid-asked spreads
b. low equilibrium prices
c. high equilibrium prices
d. wide bid-asked spreads

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  • by canadianhelper on February 17th, 2007

    canadianhelper

    D. Wide bid-asked spreads.

    You need the wider spread to account for the high transaction costs.

    In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange. A number of different kinds of transaction costs exist.

    Search and information costs are costs such as those incurred in determining that the required good is available on the market, who has the lowest price, etc. Bargaining costs are the costs required to come to an acceptable agreement with the other party to the transaction, drawing up an appropriate contract, etc.. Policing and enforcement costs are the costs of making sure the other party sticks to the terms of the contract, and taking appropriate action (often through the legal system) if this turns out not to be the case.

    Transaction costs consist of costs incurred in searching for the best supplier/partner/customer, the cost of establishing a supposedly "tamper-proof" contract, and the costs of monitoring and enforcing the implementation of the contract.

    Transaction cost theorists assert that the total cost incurred by a firm can be grouped largely into two components—transaction costs and production costs. Transaction costs, often known as coordination costs, are well defined as the costs of "all the information processing necessary to coordinate the work of people and machines that perform the primary processes," whereas production costs include the costs incurred from "the physical or other primary processes necessary to create and distribute the goods or services being produced"

    http://www.istheory.yorku.ca/transactioncosteconomics.htm
    http://en.wikipedia.org/wiki/Transaction_cost

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