FARE 1040 Study Guide - Quiz Guide: Opportunity Cost
21 Apr 2016
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The cost of market transactions taken into account. Assumption that there were no costs involved in carrying out market transactions = unrealistic. To carry out market transaction, is necessary to discover who someone wants to deal with, to inform others about the deal, to conduct negotiations leading up to bargain, write up a contract, undertake inspection for terms of contract, etc. Would be sufficiently costly to prevent many transactions if pricing system worked without cost. Once cost of carrying out market transactions is taken into account, rearrangement of legal rights will only occur when increase in value of production is greater than costs involved. When it"s less, granting of injunction or liability to pay damages = discontinued activity. Initial delimitation of legal rights would effect efficiency with economic system operation. Firm represents alternative to organizing production through market transactions. Within firm, individual bargains between cooperating factors of production = eliminated.
