In a market characterized by many sellers, assume that transaction costs for both buyers and sellers are both costlessly cut to zero.What will happen to total economic value?
A)Economic value will remain unchanged because the decrease in consumer surplus will offset the increase in producer surplus.
B)Economic value will remain unchanged because the decrease in producer surplus will offset the increase in consumer surplus.
C)Economic value will certainly increase but its magnitude will depend on the initial transaction costs of the market participants.
D)Economic value will certainly decrease but its magnitude will depend on the initial transaction costs of the market participants.

Question

Quizplus · Accepted Answer

When transaction costs are reduced to zero, it becomes easier for buyers and sellers to trade, resulting in an increase in the total economic value. However, the magnitude of the increase will depend on the initial transaction costs of participants. This is because the reduction in transaction costs will have a greater impact on markets where transaction costs were initially high. Therefore, the total economic value will certainly increase, but its magnitude will depend on the initial transaction costs.

In a Market Characterized by Many Sellers, Assume That Transaction