Changes

All your concerns can be summed in one economic term: “efficiency”.  Efficiency is the maximum possible productivity at any given time.  It consists of the least amount of wasted time, effort or money.  There is no wasted opportunity cost in an efficient operation.

All your concerns can be summed in one economic term: “efficiency”.  Efficiency is the maximum possible productivity at any given time.  It consists of the least amount of wasted time, effort or money.  There is no wasted opportunity cost in an efficient operation.

For once, this is an economic term (“efficiency”) that has the same meaning as its common everyday usage.  “It was an inefficient use of my time to sit here all morning waiting for you!”  “Try to do your chores more efficiently so that you can finish sooner.”  “She finishes her homework faster than you because she works more efficiently.”

This is an economic term (“efficiency”) that has the same meaning as its common everyday usage.  “It was an inefficient use of my time to sit here all morning waiting for you!”  “Try to do your chores more efficiently so that you can finish sooner.”  “She finishes her homework faster than you because she works more efficiently.”

Generally, maximum efficiency is desired and people want to avoid wasted time, materials, effort, and expense.  However, there is a significant obstacle to true efficiency: transaction costs.  Recall that “transaction costs” are all the incidental expenses that a consumer must spend to acquire a good.  One textbook defines transaction costs as “the time, effort, and expense that go into the purchase of a good.”<ref>Spencer, ''Contemporary Economics'', at p. D-53.</ref>  Nobel laureate Ronald Coase, discussed later in this lecture, describes “transaction costs” as simply the “costs of using the market.”

Generally, maximum efficiency is desired and people want to avoid wasted time, materials, effort, and expense.  However, there is a significant obstacle to true efficiency: transaction costs.  Recall that “transaction costs” are all the incidental expenses that a consumer must spend to acquire a good.  One textbook defines transaction costs as “the time, effort, and expense that go into the purchase of a good.”<ref>Spencer, ''Contemporary Economics'', at p. D-53.</ref>  Nobel laureate Ronald Coase, discussed later in this lecture, describes “transaction costs” as simply the “costs of using the market.”

If you love the homemade ice cream at your favorite restaurant, then you have to spend the time and money driving there, waiting for a table, tipping the waitress, paying the sales tax, etc.  All you wanted was the homemade ice cream, but many transaction costs stand in the way of a perfectly efficient transaction.

If you love the homemade ice cream at your favorite restaurant, then you have to spend the time and money driving there, waiting for a table, tipping the waitress, paying the sales tax, etc.  All you wanted was the homemade ice cream, but many transaction costs stand in the way of a perfectly efficient transaction.

One day you may want to buy a house.  Ideally, you would like to drive up to the house you want and pay the owner directly, and then move in.  But in reality, there are transaction costs in buying a house.  These include finding what you want, bargaining over the price, paying the real estate broker and attorney, and so on.  Those transaction costs drive up the price of the house, and create inefficiencies.  Some transaction costs are imposed by governmental regulations.

One day you may want to buy a house.  Ideally, you would like to drive up to the house you want and pay the owner directly, and then move in.  But in reality, there are transaction costs in buying a house.  These include finding what you want, bargaining over the price, paying a real estate broker and attorney, and so on.  Those transaction costs drive up the price of the house, and create inefficiencies.  Some additional transaction costs are imposed by governmental regulations.

== Review: Elasticity ==

== Review: Elasticity ==