Transaction cost theory - Quiz

1. High asset specificity typically leads to:

Vertical integration

Increased outsourcing

Decentralized decision-making

Lower transaction costs

2. What does Transaction Cost Theory suggest about market transactions versus hierarchies?

Markets are always more efficient

Efficiency depends on transaction costs

Hierarchies are always more efficient

Both are equally efficient

3. According to Transaction Cost Theory, what is a major disadvantage of using market mechanisms?

Increased transaction costs

Lack of scalability

Inefficient resource allocation

Reduced competition

4. Which of the following best defines “monitoring costs”?

Costs of training employees

Costs of producing goods

Costs of searching for potential partners

Costs incurred in evaluating supplier performance

5. What is the role of governance structures in Transaction Cost Theory?

To eliminate opportunism

To reduce production costs

To control employee behavior

To minimize transaction costs

6. What is “bounded rationality” in the context of Transaction Cost Theory?

The use of irrational decision-making processes

A focus on maximizing profits

The assumption that all decisions are perfectly rational

The limited ability of individuals to make rational decisions

7. Who is primarily credited with developing Transaction Cost Theory?

Peter Drucker

Herbert Simon

Michael Porter

Oliver Williamson

8. How does uncertainty affect transaction costs?

It eliminates the need for contracts

It decreases transaction costs

It increases transaction costs

It has no effect on transaction costs

9. What is the relationship between opportunism and transaction costs?

Opportunism has no effect on transaction costs

Opportunism eliminates the need for contracts

Opportunism increases transaction costs

Opportunism decreases transaction costs

10. Why are long-term contracts used in high-transaction-cost environments?

To minimize uncertainty and opportunism

To increase supplier options

To reduce production costs

To eliminate the need for negotiations

11. When transaction costs are high, organizations are more likely to:

Vertically integrate

Increase decentralization

Outsource activities

Use market mechanisms

12. What is the primary determinant of whether an organization should make or buy a product, according to Transaction Cost Theory?

Cost of capital

Technological advancement

Availability of skilled labor

Transaction costs

13. Which of the following best describes “asset specificity” in Transaction Cost Theory?

The size of the asset

The degree to which an asset can be redeployed

The ability to generalize resource usage

The profitability of an asset

14. What is the main focus of Transaction Cost Theory?

Improving financial accounting systems

Enhancing employee satisfaction

Minimizing the costs of transactions

Maximizing organizational efficiency

15. In which year did Oliver Williamson receive the Nobel Prize in Economics for his work on Transaction Cost Theory?

2015

2009

1985

1990

16. Transaction Cost Theory is often used to explain:

Employee retention

Organizational growth

Outsourcing decisions

Marketing strategies

17. Which type of transaction cost arises when organizations try to ensure compliance with contracts?

Enforcement costs

Search costs

Coordination costs

Decision-making costs

18. What is a “make-or-buy” decision?

Deciding between selling and renting assets

Choosing between manufacturing in-house or outsourcing

Determining whether to invest in advertising

Selecting suppliers based on cost

19. Which of the following is an example of “opportunism” in Transaction Cost Theory?

A company adopting sustainable practices

An employee working overtime

A supplier underpricing competitors

A partner acting in self-interest at another’s expense

20. Transaction costs include all of the following EXCEPT:

Search and information costs

Monitoring and enforcement costs

Production costs

Bargaining and decision-making costs

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