Ch 13 Review Questions With Correct
Answers 2026
In what way do Company investments in research and development create positive externalities? -
correct answer-
New technologies, once discovered, can be used by other firms who did not pay the cost of devel
opment
Well the demand for borrowing and investing in R&D be higher or lower if there are no external
benefits? - correct answer-
If the external benefits could be internalize, the demand would be higher. However, if the positive
externality simply disappeared, demand should be unchanged, since firms only care about private
benefits
Why am I a private markets tend to provide too few incentives for the development of new techn
ology? - correct answer-
Since private investors do not reap the social benefits of their investments, they may invest at a r
ate below the socially optimal level
What can government do to encourage the development of new technology? - correct answer-
Government can try to internalize some of the externalities through patent and trade secret laws
What are the two key characteristics of public goods - correct answer-
Public goods are non rival and nonexcludable
Name two public goods and explain why they are public goods - correct answer-
A fireworks display is a public good, because one person is enjoyment of it does not exclude othe
rs from enjoying it, and it is difficult to prevent someone from seeing it. Radio broadcast could als
o be considered a public good, is anyone with the receiver can listen to them in one persons cons
umption does not diminish that of others
What is the free rider problem? - correct answer-
The free rider problem is when people refuse to pay for a public good? Because they cannot be e
xcluded from its use. If many people behave in this way the good might not be produced in the fi
rst place
Answers 2026
In what way do Company investments in research and development create positive externalities? -
correct answer-
New technologies, once discovered, can be used by other firms who did not pay the cost of devel
opment
Well the demand for borrowing and investing in R&D be higher or lower if there are no external
benefits? - correct answer-
If the external benefits could be internalize, the demand would be higher. However, if the positive
externality simply disappeared, demand should be unchanged, since firms only care about private
benefits
Why am I a private markets tend to provide too few incentives for the development of new techn
ology? - correct answer-
Since private investors do not reap the social benefits of their investments, they may invest at a r
ate below the socially optimal level
What can government do to encourage the development of new technology? - correct answer-
Government can try to internalize some of the externalities through patent and trade secret laws
What are the two key characteristics of public goods - correct answer-
Public goods are non rival and nonexcludable
Name two public goods and explain why they are public goods - correct answer-
A fireworks display is a public good, because one person is enjoyment of it does not exclude othe
rs from enjoying it, and it is difficult to prevent someone from seeing it. Radio broadcast could als
o be considered a public good, is anyone with the receiver can listen to them in one persons cons
umption does not diminish that of others
What is the free rider problem? - correct answer-
The free rider problem is when people refuse to pay for a public good? Because they cannot be e
xcluded from its use. If many people behave in this way the good might not be produced in the fi
rst place
