Transaction cost theory - Quiz

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

The profitability of an asset

The ability to generalize resource usage

The degree to which an asset can be redeployed

The size of the asset

2. What is a “make-or-buy” decision?

Choosing between manufacturing in-house or outsourcing

Determining whether to invest in advertising

Selecting suppliers based on cost

Deciding between selling and renting assets

3. How does uncertainty affect transaction costs?

It has no effect on transaction costs

It decreases transaction costs

It eliminates the need for contracts

It increases transaction costs

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

To minimize transaction costs

To control employee behavior

To reduce production costs

To eliminate opportunism

5. Transaction costs include all of the following EXCEPT:

Production costs

Monitoring and enforcement costs

Search and information costs

Bargaining and decision-making costs

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

Opportunism has no effect on transaction costs

Opportunism increases transaction costs

Opportunism decreases transaction costs

Opportunism eliminates the need for contracts

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

Use market mechanisms

Outsource activities

Vertically integrate

Increase decentralization

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

An employee working overtime

A supplier underpricing competitors

A company adopting sustainable practices

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

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

Search costs

Enforcement costs

Coordination costs

Decision-making costs

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

A focus on maximizing profits

The assumption that all decisions are perfectly rational

The use of irrational decision-making processes

The limited ability of individuals to make rational decisions

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

Costs of searching for potential partners

Costs incurred in evaluating supplier performance

Costs of training employees

Costs of producing goods

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

1985

2009

2015

1990

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

Markets are always more efficient

Hierarchies are always more efficient

Both are equally efficient

Efficiency depends on transaction costs

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

Availability of skilled labor

Transaction costs

Technological advancement

Cost of capital

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

Lack of scalability

Reduced competition

Inefficient resource allocation

Increased transaction costs

16. High asset specificity typically leads to:

Vertical integration

Lower transaction costs

Decentralized decision-making

Increased outsourcing

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

Herbert Simon

Peter Drucker

Michael Porter

Oliver Williamson

18. Transaction Cost Theory is often used to explain:

Marketing strategies

Outsourcing decisions

Employee retention

Organizational growth

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

To reduce production costs

To eliminate the need for negotiations

To increase supplier options

To minimize uncertainty and opportunism

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

Minimizing the costs of transactions

Enhancing employee satisfaction

Improving financial accounting systems

Maximizing organizational efficiency

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