Que-1 Consider two countries, A and B, that have identical physical endowments o
ID: 1253200 • Letter: Q
Question
Que-1 Consider two countries, A and B, that have identical physical endowments of a key natural resource. In country A, any profits that are made from extracting that resources are subject to confiscation by the goverment, while in country B, there is no risk. How does the risk of expopriation affect the economic endowment of the two nations? In which nation are people richer?Que-2 In sight of your answer to question 1, how do you explain the fact that in some countries there is widespread political support for government policies that expropriate resources from some groups for the purpose of handing them out to other groups?
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Explanation / Answer
1.) In country A we would see that there would be less business than in country B. Less people would invest in country A because of the threat of loosing their business and profit to the government. In country B however there is no such risk bringing lots of businesses to invest in their key natural resources. Country B would be much wealthier than country A because of all the businesses invest in their country. This would bring not only jobs for the natural resources, but other industries as well due to their increase in their standard of living. While country A would be in poverty due to no incentives to bring business there and in turn vastly lowering production of these natural resources if not at all. 2.) This is because the businesses have the government in their pocket, making it so that all benefits go to them and them only. Then in turn giving the government a cut of their profits for helping them achieve this sort of government created oligarchy. But it only got this way in the first place because the government took over or regulated the industries making it extremely profitable for businesses to take this course and get in good terms with the government.