According to the theory of transaction cost economics,a market is likely to fail if:
A)There are a large number of suppliers
B)All parties to the transaction have the same level of knowledge
C)The future is highly uncertain
D)The future is highly certain
E)Assets may be used to produce a variety of products or services

Question

Quizplus · Accepted Answer

The theory of transaction cost economics states that markets may fail due to transaction costs, including uncertainty about the future. Therefore, a market is likely to fail if the future is highly uncertain. Choices A and E are incorrect because a large number of suppliers and assets that can be used for a variety of products or services are features of a competitive market and do not necessarily indicate market failure. Choice B is incorrect because asymmetric information (when one party has more knowledge than the other) can also lead to market failure, not just equal knowledge. Choice D is incorrect because a highly certain future would likely reduce transaction costs and increase market efficiency.

According to the Theory of Transaction Cost Economics,a Market Is