What Do Different Types of Business Transactions Look Like?

Based on the following scenarios, what types of business transactions are being illustrated?

a. A major oil company refines gasoline from crude oil produced by oil wells that it owns.

b. Transcontinental, an interstate natural-gas pipeline, has a legal obligation to purchase a specified amount of gas per week from a well owned by Fred Smith in Enid, Oklahoma.

c. A cabinetmaker purchases a dozen wood screws from the local hardware store.

d. An electric utility purchases coal from an underground mine.

Types of Business Transactions:

a. Vertical integration

b. Contracts

c. Spot exchanges

d. Contracts or Spot exchanges

Business transactions come in various forms, each representing a different relationship between parties involved. In the given scenarios:

Vertical Integration:

When a major oil company refines gasoline from crude oil produced by its own oil wells, it showcases vertical integration. This means the company controls multiple stages of the supply chain, from production to processing.

Contracts:

The situation where Transcontinental is legally obligated to purchase a specified amount of gas from Fred Smith's well indicates a contractual agreement. Contracts are formal, legally binding agreements that outline the terms and conditions of a transaction.

Spot Exchanges:

Spot exchanges involve immediate transactions where commodities are exchanged for payment on the spot. The purchase of wood screws by the cabinetmaker from the local hardware store exemplifies a spot exchange.

Potential Contracts or Spot Exchanges:

When an electric utility buys coal from an underground mine, it could fall under either contracts or spot exchanges depending on the nature of the transaction. If there is a pre-agreed contract in place, it would be categorized as a contract. On the other hand, if the purchase is made immediately without a prior agreement, it would be considered a spot exchange.