Transaction cost theory - Quiz

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

To reduce production costs

To increase supplier options

To eliminate the need for negotiations

To minimize uncertainty and opportunism

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

Markets are always more efficient

Both are equally efficient

Efficiency depends on transaction costs

Hierarchies are always more efficient

3. Transaction Cost Theory is often used to explain:

Outsourcing decisions

Organizational growth

Employee retention

Marketing strategies

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

Use market mechanisms

Increase decentralization

Outsource activities

Vertically integrate

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

To control employee behavior

To reduce production costs

To minimize transaction costs

To eliminate opportunism

6. What is a “make-or-buy” decision?

Choosing between manufacturing in-house or outsourcing

Determining whether to invest in advertising

Deciding between selling and renting assets

Selecting suppliers based on cost

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

Opportunism decreases transaction costs

Opportunism has no effect on transaction costs

Opportunism increases transaction costs

Opportunism eliminates the need for contracts

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

The use of irrational decision-making processes

The limited ability of individuals to make rational decisions

A focus on maximizing profits

The assumption that all decisions are perfectly rational

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

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

An employee working overtime

A company adopting sustainable practices

A supplier underpricing competitors

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

1990

2015

2009

1985

11. High asset specificity typically leads to:

Decentralized decision-making

Lower transaction costs

Vertical integration

Increased outsourcing

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

Inefficient resource allocation

Increased transaction costs

Reduced competition

Lack of scalability

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

Costs of training employees

Costs of producing goods

Costs incurred in evaluating supplier performance

Costs of searching for potential partners

15. How does uncertainty affect transaction costs?

It eliminates the need for contracts

It has no effect on transaction costs

It decreases transaction costs

It increases transaction costs

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

Peter Drucker

Michael Porter

Oliver Williamson

Herbert Simon

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

Coordination costs

Decision-making costs

Search costs

Enforcement costs

18. Transaction costs include all of the following EXCEPT:

Production costs

Bargaining and decision-making costs

Monitoring and enforcement costs

Search and information costs

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

The size of the asset

The profitability of an asset

The ability to generalize resource usage

The degree to which an asset can be redeployed

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

Enhancing employee satisfaction

Improving financial accounting systems

Maximizing organizational efficiency

Minimizing the costs of transactions

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