Everywhere, everyday, transaction costs make our tasks more difficult.
- When was the SAT first taken by students?
- Why was the SAT created?
- During this year (2021), approximately how many colleges said taking the SAT would be optional?
- How did the change in the SAT’s status affect college applications to the most elite schools?
- In one sentence, state a fact that is illustrated by the graph on first year applications to select schools.
- How do the SAT and ACT relate to economic friction?
The Economic Idea: Transaction Costs
The friction in our lives creates transaction costs. For example, friction is created when we have to fill out lots of forms or hear a hierarchy of recorded messages before contacting the recipient of a phone call. The cost of forms and messages is wasted time. The time we could have used elsewhere is the transaction cost.
There are many different kinds of transaction costs. They include time and money and unnecessary obstacles. All reflect the friction that slowed us down or formed a barrier.
Lifting the SAT or ACT requirement eliminated a transaction cost. Students no longer had to sign up for the test or pay or prepare for it. In addition, they realized that a standard for admission could have been eliminated. As a result, many more people are applying to elite schools.
Activity Goal: To become more familiar with transaction costs.
- On a small piece of paper, each student should note something that you accomplish.
- Pass the paper to a classmate.
- The recipient of the note should identify at least one transaction cost associated with the activity.
- Then pass the note to someone else who should consider why the transaction cost exists. Decide what it helps and what it harms.
- Re-gather as a class.
- Create a list of transaction costs and their impact.
- Decide if your list leads you to any conclusions that require action from individuals, businesses, or government.