In the context of introductory economics, what is the term used when both the buyer and seller incur costs during a transaction?

• A. Marginal costs
• B. Opportunity costs
• C. Transaction costs
• D. Sunk costs

Answer: (C)

Verified step by step guidance

1. Understand the concept of costs involved in economic transactions. In microeconomics, costs can refer to various types such as marginal costs, opportunity costs, sunk costs, and transaction costs.
2. Marginal costs refer to the additional cost of producing one more unit of a good or service, which is typically borne by the producer or seller.
3. Opportunity costs represent the value of the next best alternative foregone when making a decision, applicable to both buyers and sellers but not specifically tied to the transaction process itself.
4. Sunk costs are costs that have already been incurred and cannot be recovered, and thus do not affect current transaction decisions.
5. Transaction costs are the costs incurred by both buyers and sellers during the process of making an exchange, such as search and information costs, bargaining costs, and enforcement costs. This term specifically captures the idea of costs borne by both parties in a transaction.