The term ‘rent-seeking’ was introduced by Ann O. Krueger (1974), but the relevant theory had already been developed by Gordon Tullock (1967). The basic and very simple idea is best explained by reference to Figure 1. On the horizontal axis we have as usual the quantity of some commodity sold, on the vertical axis its price. Under competitive conditions the cost would be the line labelled PP and that would also be its price. Given a demand curve, DD, quantity Q would be sold at that price. If a monopoly were organized, it would sell Q′ units at a price of P′.
KeywordsSocial Cost Demand Curve Total Investment Rent Seek Lobbying Activity
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