Chapter 19: Positive Externalities & Public Goods

Question 1

When does competition discourage new technology?

Answer 1

When R&D costs are so high as to be risky, and/or when other firms can quickly copy a new idea in a way that circumnavigates the patent

Question 2

What are positive societal externalities to education?

Answer 2

1. Better population health outcomes
2. Lower levels of crime
3. Cleaner environment
4. More stable, democratic government

Question 3

What is the most prominent example of a positive externality?

Answer 3

Technology that provides wide social benefits, even when researched and developed by a firm

Question 4

Patent

Answer 4

Intellectual property right that gives the inventor the exclusive legal right over its work for a temporary time, allowing the firm to earn monopoly profits on its product for a period of time

Question 5

Alternative Policies to patents (3)

Answer 5

1. Government spending on R&D
2. Tax breaks for R&D
3. Cooperative research

Question 6

Public Good

Answer 6

Good that is nonexcludable and nonrivalrous, and thus is difficult for market producers to sell to individual consumers

Question 7

Nonexcludable

Answer 7

When it is costly or impossible to exclude someone from using the good, and thus hard to charge for it

Question 8

Nonrivalrous

Answer 8

Even when one person uses the good, others can use it

Question 9

Free Rider

Answer 9

Those who want others to pay for the public good and then plan to use the good themselves; if many people act as free riders, the public good may never be provided

Question 10

Prisoner’s Dilemma

Answer 10

Situation in which two players each have two options whose outcome depends crucially on the simultaneous choice made by the other, often formulated in terms of two prisoners separately deciding whether to confess to a crime.
Applicable to public goods - many need to contribute, but anyone that doesn’t can be a free rider. Free riders depend on others choosing not to be free riders.

Question 11

Tragedy of the Commons

Answer 11

Overharvesting of common resources that nobody had property rights over

Question 12

What are solutions to Tragedy of the Commons in overfishing?

Answer 12

Fishing licenses, harvest limits, limits to fishing season, and (when necessary) fishing bans

Question 13

What are the 3 primary factors in the positive externality of longer life expectancy due to public health programs?

Answer 13

1. Systems for clean water and human waste disposal
2. Changes in public behavior
3. Medicine, dugs, & immunizations