Question

Examples of transaction costs include ​(check all that​ apply): A. the cost of the externality. B. the cost of monitoring an agreement. C. the cost of drafting a contract or agreement. D. the difference between the private costs and social costs of production. E. the time required to negotiate an agreement. When are we likely to see private solutions to the problem of​ externalities?

Answer 1

The correct answer is option B, C, and E.

Step-by-step explanation:

Transaction cost refers to the cost incurred on resources and time necessary for facilitating exchange of goods and services.

Among the given options, the examples of transaction cost is cost of monitoring an agreement, the cost of drafting a contract or agreement, and the time required to negotiate an agreement.

All these costs are incurred in order to facilitate exchange of goods and services.

The problem of externalities can have efficient private solution if these transaction costs are low otherwise the governement has to intervene to efficiently allocate resources.