Transaction costs refer to the expenses incurred when buying or selling goods and services. These costs can include fees for services, time spent negotiating, and expenses related to enforcing contracts. They can affect the overall efficiency of markets and influence decisions made by individuals and businesses. In economics, understanding transaction costs is crucial for analyzing how markets operate. High transaction costs can discourage trade and lead to less efficient outcomes. By minimizing these costs, such as through technology or better regulations, economists aim to improve market efficiency and encourage more transactions.