What are transaction costs?

Transaction costs are the extra things you have to do or pay when you make a deal or switch from one thing to another.

Imagine you want to trade your toy car for your friend’s candy bar. It sounds simple, right? But then you realize: you both need to agree on what each item is worth. You might have to count the candies, check if the toy car works, and maybe even ask a grown-up to help decide. All of that takes time and effort, and those are transaction costs.

Think about going to the store with your mom to buy cookies. She says you can get one cookie for 50 cents. But before you take it, she asks you to count out the coins, make sure the cashier gives you the right change, and even check if the cookie is still warm. All that extra work, counting, checking, waiting, are transaction costs too.

Sometimes, transaction costs can be as simple as a little bit of time or effort. Other times, they might feel like a big deal, especially when you're trying to trade something important!