Transaction cost refers to the expenses incurred when buying or selling goods and services. These costs can include fees for negotiating contracts, searching for information, and enforcing agreements. Essentially, transaction costs are the additional costs that arise beyond the price of the product itself. These costs can impact economic efficiency and influence business decisions. For example, if the transaction costs are too high, a company may choose to produce goods in-house rather than outsourcing to another firm. Understanding transaction costs is crucial for businesses to optimize their operations and improve profitability.