Quiz

Test you understanding of key chapter concepts by working through this quiz. You can check your answer by clicking on the arrow to the right or on what you think the correct answer is.  The correct answer will then be revealed to you for that question. 

1. Which of the following forms of governance does Transaction Costs Economics (TCE) consider?

  1. Hierarchical  
  2. Diagonal
  3. Linear
  4. Triangular

Answer:

a. Hierarchical 

2. Horizontal integration occurs:

  1. When a firm competes with another
  2. When a firm outsources to another
  3. When a firm is dissolved
  4. When a firm acquires or merges with another

Answer:

d. When a firm acquires or merges with another

3. Vertical integration occurs:

  1. When a firm competes with another
  2. When a firm outsources to another
  3. When a firm moves into activities that were previously undertaken by a supplier or a customer
  4. When a firm acquires or merges with another

Answer:

c. When a firm moves into activities that were previously undertaken by a supplier or a customer

4. Outsourcing occurs when:

  1. Activities that were previously undertaken by the firm are moved to outside suppliers
  2. Firms take over sourcing things themselves that they previously bought
  3. A firm undergoes innovation
  4. None of the above

Answer:

a. Activities that were previously undertaken by the firm are moved to outside suppliers

5. The alternative to market transactions in TCE is:

  1. Barter
  2. Gifts
  3. Employment contracts
  4. Potlatch 

Answer:

c. Employment contracts

6. According to TCE, the boundary of the firm is _______.

  1. Defined by real estate
  2. Defined by geography
  3. Defined by economic considerations concerning make or buy, internalizing or externalizing activities
  4. None of the above 

Answer:

c. Defined by economic considerations concerning make or buy, internalizing or externalizing activities

7. The ‘father’ of TCE is:

  1. Karl Marx
  2. Hamish McTaggart
  3. Ronald Coase
  4. Henry Mintzberg

Answer: 

c. Ronald Coase

8. TCE postulates that human actors are characterized by ______, _______ and ______.

  1. Creativity/opportunism/strategic foresight
  2. Bounded rationality/bounded business units/unbounded energy
  3. Bounded rationality/opportunistic behaviour/feasible foresight
  4. None of the above

Answer: 

c. Bounded rationality/opportunistic behaviour/feasible foresight

9. What is TCEs’ key question?

  1. Whether transactions should be coordinated within a firm or across markets
  2. Whether rationality is bounded enough
  3. Whether to invest more in innovation
  4. All of the above

Answer:

a. Whether transactions should be coordinated within a firm or across markets

10. Bounded rationality means:

  1. We never have perfect knowledge and hence can never be perfectly rational
  2. We are irrational by nature
  3. We cannot be rational because we are forgetful
  4. Gaining advantage by being economical with, or even distorting, what we take to be the truth

Answer:

a. We never have perfect knowledge and hence can never be perfectly rational