Transaction cost theory - Quiz

1. What is a “make-or-buy” decision?

Determining whether to invest in advertising

Choosing between manufacturing in-house or outsourcing

Selecting suppliers based on cost

Deciding between selling and renting assets

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

To reduce production costs

To increase supplier options

To minimize uncertainty and opportunism

To eliminate the need for negotiations

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

Improving financial accounting systems

Maximizing organizational efficiency

Enhancing employee satisfaction

Minimizing the costs of transactions

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

Hierarchies are always more efficient

Both are equally efficient

Markets are always more efficient

Efficiency depends on transaction costs

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

Inefficient resource allocation

Reduced competition

Lack of scalability

Increased transaction costs

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

Search costs

Enforcement costs

Coordination costs

Decision-making costs

7. Transaction Cost Theory is often used to explain:

Outsourcing decisions

Employee retention

Marketing strategies

Organizational growth

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

Technological advancement

Cost of capital

Availability of skilled labor

Transaction costs

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

Opportunism increases transaction costs

Opportunism has no effect on transaction costs

Opportunism decreases transaction costs

Opportunism eliminates the need for contracts

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

Increase decentralization

Outsource activities

Use market mechanisms

Vertically integrate

11. Transaction costs include all of the following EXCEPT:

Monitoring and enforcement costs

Search and information costs

Bargaining and decision-making costs

Production costs

12. How does uncertainty affect transaction costs?

It eliminates the need for contracts

It increases transaction costs

It decreases transaction costs

It has no effect on transaction costs

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

A supplier underpricing competitors

An employee working overtime

A company adopting sustainable practices

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

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

Oliver Williamson

Peter Drucker

Herbert Simon

Michael Porter

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

2009

1990

2015

1985

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

The ability to generalize resource usage

The size of the asset

The degree to which an asset can be redeployed

The profitability of an asset

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

The limited ability of individuals to make rational decisions

The assumption that all decisions are perfectly rational

The use of irrational decision-making processes

A focus on maximizing profits

18. High asset specificity typically leads to:

Decentralized decision-making

Increased outsourcing

Lower transaction costs

Vertical integration

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

Costs of producing goods

Costs incurred in evaluating supplier performance

Costs of training employees

Costs of searching for potential partners

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

To control employee behavior

To minimize transaction costs

To reduce production costs

To eliminate opportunism

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