Transaction Cost

   Transaction cost is a concept in economics, refers to the completion of a transaction, the transaction generated both before and after the sale of the various costs associate with this transaction, which was proposed by Ronald Harry Coase. Coase believes that transaction costs should include metrics, define and protect property rights costs; find trading partners and transaction price paid; bargain, the cost to contract; fee urge strict compliance with the contract terms.

   Academia generally accepted transaction costs could be broadly divided into two narrow transaction costs. Transaction costs include all costs of generalized non-Robinson economy appears that, in order to break through all obstacles and reach tangible and intangible costs of exchanges needed. Transaction costs refer to the narrow market transaction costs, which exogenous transaction costs. Include: search costs, negotiation costs and compliance costs.

   For instance, many students in universities need to buy a car to make their daily life easier. The students have different taste and they need to choose different brands, makes and models. For example, there are limited resources of cars in Champaign, but the situation is different in Chicago. So many students need to buy cars in Chicago, they need to borrow cars to drive there or take the train to get to Chicago. The money and time students spend is transaction cost. Usually people will spend many time looking for a car, also some of people need to ask some people who know the cars very well. All these things can be called transaction cost.

   According to most scholars agree with the view, the transaction costs are "institutional costs" occurs when the use of market mechanisms. For example, the North believes that there are transaction costs to make the process of economic friction, which is the key factor affecting economic performance. Cheung also holds a similar view, he believes that a good economic system can effectively reduce coordination costs, namely saving transaction costs; bad economic system will improve the coordination of social costs, that increase transaction costs.

The Introduction of Abba Lerner

  Abba Ptachya Lerner, a Russian-born British man, who was one of the most excellent economic expositor in the 20^th century. Abba was born in Romania and immigrated to Britain with his parents when he was a child. He was so brilliant to make those extremely complicated concepts crystal clear. From his perspective, he thought the market needs high-level freedom which people called ‘Free Markets’. He also pointed out that the government should not control the price of the goods and the salaries those enterprises gave because the price system and the employment of those enterprise are individual and free, they should not be influenced by the government.

  Furthermore, the Lerner’s best know article is “ The Concept of Monopoly and the Measurement of Monopoly Power.” It clearly showed why setting the price of good equal to the marginal cost is so important for efficiency. This article changed the view of government to those monopoly power and enterprises.

   However, Abba Lerner also has very sharp mind for analysis, which made him can follow an argument to its logical conclusion. This made him can do well in helping the governments’ decision and economic development analysis. For example, when john maynard keynes gave a talk at the Federal Reserve Board in Washington, Lerner, who was in the audience, found Keynes’s view of how the economy worked completely convincing and challenged Keynes for not carrying his own argument to its logical conclusion. Keynes denounced Lerner on the spot, but Keynes’s colleague Evsey Domar, seated beside Lerner, whispered,  “He ought to read The General Theory.” A month later, wrote Lerner, Keynes withdrew his denunciation.

   In conclusion, Abba Lerner was a brilliant guy who made a lot of contribution to the development of economic.

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