Economy Problem Set 3 - DECEMBER 19, 2007 PROBLEM SHEET 3...

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D ECEMBER 19, 2007 P ROBLEM S HEET 3 1. (5 POINTS ) W HY ARE WE RICH ? a. (1 POINT ) I N A MARKET ECONOMY , WHY DO PEOPLE PRODUCE WEALTH AND PRODUCE THE GOODS AND SERVICES THAT PEOPLE WANT ? W HAT IS THE DIFFERENCE BETWEEN THIS AND RENT - SEEKING ”? H OW IS THIS ANOTHER WAY FOR PEOPLE TO GET RICH ? People produce to satisfy their needs and wants. They want to produce wealth to gain power, better life, a better health and also to guarantee their survival needs (food, clothing, shelter and so on). Of course there are people who do it the same but in illegal and unethical ways, those are the rent-seeking behaviors. Rent seeking is basically getting wealth in any ways possible no matter what the cost is to them or to others; monopolies could also be an example. b. (2 POINTS ) A RE ALL FORMS OF WEALTH - CREATION DESIRABLE ? W HY MIGHT SOME BE UNDESIRABLE ? W HAT ARE SOME SOCIALLY WORTHWHILE ACTIVITIES THAT ARE NOT REWARDED FINANCIALLY ? W HY ARE THESE NOT REWARDED AS WEALTH - CREATION ? No some might be undesirable because they are to slow depending on their level and position. Volunteer work are socially desireable acts but not rewarded economically, other activities include the many times we have our friends and family do things for us and us not rewarded as wealth- creation because they are doing this willingly, sort of way pay people to do things if they are willing to do it for free? It’s cheaper and more economical!! c. (2 POINTS ) B RIEFLY DISCUSS , WITH EXAMPLES , SOME OF THE CIRCUMSTANCES THAT LEAD PEOPLE TO PURSUE WEALTH - CREATION VERSUS RENT SEEKING . H OW MIGHT THIS ACCOUNT FOR THE DIFFERENCE BETWEEN THE WEALTHY COUNTRIES IN W ESTERN E UROPE /N ORTH A MERICA / E AST A SIA AND POORER COUNTRIES IN A FRICA OR E ASTERN E UROPE . Situations in which people might go for wealth-creation would be because
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Economy Problem Set 3 - DECEMBER 19, 2007 PROBLEM SHEET 3...

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