econ problem set 3

econ problem set 3 - Mittleman and Delanese 1 Josh...

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Mittleman and Delanese Josh Mittleman and Brian Delanese **We are in different sections but both have you, Econ 103 Avanti, as our T.A.** Prof Friedman Fall 2007 1. a. In a market economy people produce the goods and services people want so that they make more money because consumers buy what they need and want, which is all that is being produced. Rent-seeking is when an individual, organization, or firm seeks to make money by manipulating the economic and/or legal environment, rather than by making a profit through trade and production of wealth. Rent-seeking can be profitable because if "buying" a favorable regulatory environment is cheaper than building more efficient production, a firm will choose the first option and therefore create income. b. Not all forms of wealth-creation are desirable. Rent-seeking is not desirable because it leads to wasteful product differentiation, limited production, and other anti-competitive behavior. A socially worthwhile activity that is not rewarded financially would be volunteer work for charity organizations. People sacrifice time and effort for these companies but don’t get paid. Instead they do it because they feel the organization helps people and they in turn can help people by helping the organization. These are not rewarded as wealth-creation because no profit is made. All revenue is put entirely back into the organization. c. Wealth-creation is a better pursuit because it creates more long-term profit. Rent- seeking creates more instant money but in the long-run wealth-creation is more profitable. In America some companies use rent-seeking and then once the profit
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This note was uploaded on 10/06/2008 for the course ECON 103 taught by Professor Voorheis during the Fall '08 term at UMass (Amherst).

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econ problem set 3 - Mittleman and Delanese 1 Josh...

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