Answer to Question 1
(1.) Standardized production techniques.
(2.) Inputs purchased in volume.
(3.) Inputs produced by the firm rather than purchased elsewhere.
(4.) Lower transportation costs when products are shipped in bulk.
Answer to Question 2
Political corruption is costly to society and creates inefficiencies for several reasons.
It leads to wasteful use of tax dollars. Taxes raised to be invested in public goods or redistribution go into the pockets of corrupt politicians or their cronies.
It induces a misallocation of resources. For example, a contract for a new government building may go to a less efficient firm that pays a bribe to the politician in charge of the allocation, over the most efficient firm with the lowest bid.
It potentially discourages investment as companies that anticipate that they will have to pay bribes to politicians in order to be successful may be discouraged from entering or investing.
It may have highly distortionary indirect effects. For example, in order to be able to obtain bribes, politicians may erect entry barriers in certain markets. Entry barriers enable existing firms to make high profits;these firms in turn might pay part of those profits as bribes to politicians.
A political system that allows bribes may also attract those who are unscrupulous enough to seek public office for personal enrichment.
A-head: CONTROLLING POLITICIANS
Concept: Corruption
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