Week 8 Institutions and the business environment

Question 1

Explain what institutions are?

Answer 1

1) Institutions are norms, rules of conduct and generally accepted ways of doing things
2) They are created by people
3) Their role is to regulate humans, business and state interactions
4) They can be formal e.g. laws or informal e.g. norms derived from repeated human behaviour

Question 2

Explain what transaction costs are?

Answer 2

1) All costs necessary for buyers and sellers to buy and sell goods or services
2) These costs could be financial, time related or just the inconvienience of carrying out an activity

Question 3

Explain what transaction costs include?

Answer 3

• Legal fees;
  *The costs of negotiations;
  *The cost of monitoring and enforcing a contract;
  *The cost of finding information (scoping/analysing the market);
  *The cost of labour to produce and deliver a good or service to the market;
  *The cost of disposing of inventory or capital.