Question

Provide a reasonably complete description of one example of rent-seeking behavior by individuals or firms, including the following: the type of rent sought, a brief microeconomic explanation of the mechanism involved, the government action anticipated, and the impacts on other economic actors as well as overall economic efficiency.

Answer 1

Ans

One such example is usa tariff on goods from developing countries.e.g on steel from China. This raises prices of steel in usa and protects domestic producers of steel. Producers surplus rises as price increase. The Govt supports such demands due to lobyysim and anticipated political gains. But consumers loose as gain in producer surplus plus Govt revenue from tariff is less than loss of consumer surplus. Economic efficiency falls since more domestic output is produced at higher cost