Which of the following is NOT an example of a transaction cost?

• A. The price paid for a product
• B. The time spent negotiating a contract
• C. The fees paid to lawyers to draft agreements
• D. The cost of searching for information about sellers

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of transaction costs. Transaction costs are the costs incurred during the process of buying or selling goods or services, excluding the actual price of the product itself. These include costs like searching for information, negotiating contracts, and enforcing agreements.
2. Step 2: Identify each option and classify it as either a transaction cost or not. For example, 'The time spent negotiating a contract' involves effort and resources beyond the product price, so it is a transaction cost.
3. Step 3: Analyze 'The fees paid to lawyers to draft agreements.' Since this is a cost related to facilitating the transaction (legal services), it qualifies as a transaction cost.
4. Step 4: Consider 'The cost of searching for information about sellers.' This is a classic example of a transaction cost because it involves resources spent to find trading partners.
5. Step 5: Evaluate 'The price paid for a product.' This is the actual market price or purchase price, not a cost incurred in the process of making the transaction happen. Therefore, it is NOT a transaction cost.