In his article, “The Rationale of the Market Economy,” John Kay states: “A one sentence description of why some countries are poor and others rich is that the politics and economics of poor countries are dom inated by rent -seeking and the politics and economics of rich countries are not.” [ It is useful to keep in mind here our postulate that economic systems are fractal, implying that similar explanations may apply to differences in the economic performance among businesses. Write an essay that (1) explains the meaning of rent -seeking and (2) use Kirzner’s framework (“The Meaning of Market Process”) combined with Kay’s arguments to explain the economic mechanics behind why Kay’s quote has analytical merit . Use quotations from the readings to support your argument. [About three pages, double -spaced . Focus on the cause - and -effect analysis. Why, why, why? Dr ill down on the arguments to explain the economic mechanics driving the outcomes. ]

Answer:

As Kizner's Framework of Market Process , market economy decisions are made independently by many market participants in their capacities as consumers, owners of resources , or as enterpreneur producers, these decisions are made on the basis of what individuals think are the best options available to them. Buyers offer high prices because they think no one is prepared to buy for more . Producers refrain from producing an item because they mistakenly believe that the resources needed to produce a second item at high cost because they think potential buyers are more eager to buy it and so on. A seller who has accepted a price lower than the price being paid and resell at the higher price, in such opportunities for pure profit tend to attract attention . For eg;- the prices of certain goods are held to be too high ; milk to consumers or too low ; wheat prices received by farmers, too low; medical care, or too high; unsafe toys and so on. The government decision makers are motivated solely by the urge to induce a pattern of phenomena that faithfully reflects consumer preferences, there is no way they can know the correct price or the correct quantity for any particular product or resource. From the prospective views of it the regulation of market challanged on the basis of insights concerning the market process.

Markets as process of discovery , markets as process of mechanism for the diffusion of political and economic power, there has been policy errors followed incomplete understanding of how a market economy really works. Prosperity and growth of a market system require that entrepreneurial energy should be foccussed on creation of wealth rather than the appropriation of people's wealth. As Words of John kay; a popular caricature of the market economy sees greed as the dominant human motivation, and economic progress best achieved by acknowledging that behaviour and imposing as few restrictions as possible on what these greedy people do. The market system , market economy depends constant repleinshment from new entry , but planners and governments of a market economy see industries through the eyes of estsablished firms already in the industry. A one sentence description of why some countries are poor and others rich is that; the politics and economics of poor countries are dominated by rent seeking and politics and economics of rich countries are not.

Rent seeking is the process that exists to the political and economic system by which the political system used to dominated by by rent seeking. The mechanism of rent seeking range from armed force to victory in democratic election, by the rent seeking system the ambitious find it more rewarding to batten on the wealth created by other people than to create it themselves. The occurance of domination in political system is by rent seeking. It depends on the decentralisation of economic power whether in public and private businesses , individuals will try to get their hands on the rents such concentrations of power attract.