Corruption has been a significant problem in Iraq. Opening and running a business in Iraq usually requires

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Corruption has been a significant problem in Iraq. Opening and running a business in Iraq usually requires paying multiple bribes to government officials. We can think of there being a demand and supply for bribes, with the curves having the usual shapes: The demand for bribes will be downward sloping because the smaller the bribe, the more business owners will be willing to pay it. The supply of bribes will be upward sloping because the larger the bribe, the more government officials will be willing to run the risk of breaking the law by accepting the bribe. Suppose that the Iraqi government introduces a new policy to reduce corruption that raises the cost to officials of accepting bribes-perhaps by increasing the jail term for accepting a bribe. As a result, the supply curve for bribes will shift to the left. If we measure the burden on the economy from corruption by the total value of the bribes paid, what must be true of the demand for bribes if the government policy is to be effective? Illustrate your answer with a demand and supply graph. Be sure to show on your graph the areas representing the burden of corruption before and after the government policy is enacted.
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Microeconomics

ISBN: 9780135952955

8th Edition

Authors: Glenn Hubbard, Anthony Patrick O Brien

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