Illustrate and explain the impact of a school voucher system. The introduction of school vouchers extends the budget line from point A and parallel to the original budget line. The family that was in equilibrium at A will be able to get to a higher level of utility at B where they choose more education. Illustrate and explain the impact on the budget line of health insurance. Explain the importance of transactions costs in the theory of the firm.
Transactions costs are half of the explanation behind the theory of the firm.
One source of lower costs is the ability of firms to avoid transactions costs. Transactions costs are the costs associated with market transactions. The costs include search costs, contracting costs, negotiating costs, and monitoring costs. These costs increase the costs of organizing production through markets. Firms avoid transactions costs by moving the exchange out of the market and into the firm.