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transaction costs

In a broader sense, transaction costs refer to the costs inherent in economic transactions that are not part of the price paid for a product or service. For example, many people would pay $3 for an ice-cream in a parlour 100 metres from their home, than drive 3 km to another parlour for the exact same ice-cream for $2. Why? Because the transaction cost of petrol, time and effort involved in driving those 3 km there and back are greater than the $1 saving in the price of the ice-cream.


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