Exam 13: Positive Externalities and Public Goods

A drug company is deciding how much to invest in Research and Development into finding a cure stomach cancer. The table below shows the company's demand for financial capital for R&D of this drug, based on its expected rates of return from selling the drug. Every investment has an additional 4% social return: that is, an investment that pays at least a 5% return to the drug company will create at least a 9% return for society as a whole. If the opportunity cost of financial capital for the drug company falls from 7% to 5%, the drug company will invest _______ more in R&D if it receives only the private benefits of this investment.

There is a skating rink in your city that is open to anybody to use at any time. They even provide skates for people who don't own any. This is an example of a good that is

The term "basic research" applies specifically to research pertaining to fundamental scientific breakthroughs that may offer commercial applications in the _______.

YummyCandiesCo. has developed a new candy bar that contains a full recommended daily allowance of vitamins and minerals. This invention will provide considerable spillover benefits to society. The table below shows the demand for the candy bars, the supply of candy bars if the company receives only the private benefits, and the supply of candy bars if the firm also receives the full social benefits. If the firm's candy bars were sold on the basis of both private and social benefits, the equilibrium price and quantity would be

If a firm's efforts to be technologically innovative will create a positive externality, then that firm will likely

Briefly describe how the free rider problem can be overcome.

If I'MSmartCo's research and development project succeeds, then

Which of the following would most likely be recognized as a defining characteristic of a public good?

The SaferGlass Co. makes windshields for the automotive industry. It wants to develop a new product with shatterproof glass to increase safety. The development of the new glass requires them to change their production process significantly. The company has developed a list of possible ways of implementing the production process changes, along with estimates of how each would affect the production and sales costs. Based on these estimates, the table below shows the value of R&D projects that provide at least a certain social rate of return. Every investment in R&D would have an additional 3% social return: that is, an investment that pays at least a 4% return to the glass company will pay at least 7% return for society as a whole. If the opportunity cost of financial capital for SaferGlass Co. is 9%, the company will invest _______ In R&D if it receives only the private benefits of this investment.

Many residents of a particular town enjoy taking their dogs with them when they go to their local park for recreation and picnics. Everybody enjoys the park more when each group cleans up after themselves and their pets, but nobody enjoys the act of cleaning up after themselves or their dogs. We can expect the park to be _______, due to a _______.

Which of the following is the most appropriate response of public policy to a negative externality like pollution?

How does the cost of financial capital influence innovative research and development activities in a competitive market?

Briefly explain whether a patent should be used to provide an incentive for investors? If your answer is positive, explain whether there should be any limits or conditions relating to same.

One reason some economists doubt that patent protection encourages innovation is that economic studies show that inventors receive only _______ of the total economic value of their inventions in countries that _______.

If the government determines that the private sector does not have sufficient incentive to carry out research and development, which of the following is likely to be a reasonable response?

Which of the following would some economists be likely to perceive as the most appropriate public policy response to a positive externality created by the development of a highly innovative new technology?

Identify all of the characteristics of a public good.

One difficulty with direct government support of R&D is that it inevitably involves government decisions about _______.

The SaferGlass Co. makes windshields for the automotive industry. It wants to develop a new product with shatterproof glass to increase safety. The development of the new glass requires them to change their production process significantly. The company has developed a list of possible ways of implementing the production process changes, along with estimates of how each would affect the production and sales costs. Based on these estimates, the table below shows the value of R&D projects that provide at least a certain social rate of return. Every Investment in R&D would have an additional 3% social return: that is, an investment that pays at least a 4% return to the glass company will pay at least 7% return for society as a whole. If the opportunity cost of financial capital for SaferGlass Co. is 9%, the company will invest _______ In R&D if it receives both the private and social benefits of this investment.

If large numbers of individuals choose to behave as free riders,