Chapter 13 Positive Externalities and Public Goods

Free Rider

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

intellectual property

The body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions

nonexculdable

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

Nonrivalous

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

positive externalities

Beneficial spillovers to a third party or parties

Private benefits

The dollar value of all benefits of a new product or process invented by a company that can be captured by the investing company

Private rates of return

When the estimated rates of return go primarily to an individual; for example, earning interest on a savings account

Public Good

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

Social benefits

The dollar value of all benefits of a new product or process invented by a company that can be captured by other firms and by society as a whole

Social rate of return

When the estimated rates of return go primarily to society; for example, providing free education

"Tragedy of the Commons"

problem of overharvesting common resources, such as fish in the sea

technology

Advances in __________, being vaccinated against a disease protecting other people from that disease, and the modernization of neighbors homes impacting property values in an entire neighborhood are all examples of positive externalities.

Intellectual property

__________________ rights include patents, which give the inventor the exclusive legal right to make, use, or sellthe invention for a limited time, and copyright laws, which give the author an exclusive legal right over works ofliterature, music, film/video, and pictures. For example, if a pharmaceutical firm has a patent on a new drug, then noother firm can manufacture or sell that drug for twenty-one years, unless the firm with the patent grants permission.

Public Goods

_____________ have two defining characteristics: they are nonexcludable and nonrivalrous

free rider problem

The problem in which people have an incentive to let others pay for a public good to which they enjoy some benefit is called a ________

Radio

Privately created public good

Technology

____________ changes how people live and work and what they buy.

Market competition

____________ can provide an incentive for discovering new technology because a firm can earn higher profits by finding a way to produce products more cheaply or to create products with characteristics consumers want.

positive externalities

private benefits and social benefits

future benefit

The investment in anything, whether it is the construction of a new power plant or research in a new cancer treatment, usually requires a certain upfront cost with an uncertain____________. The investment in education, or human capital, is no different.

Walter McMahon

According to __________, the positive externalities to education typically include better health outcomes for the population, lower levels of crime, a cleaner environment and a more stable, democratic government. For these reasons, many nations have chosen to use taxpayer dollars to subsidize primary, secondary, and higher education.

public policy

The appropriate __________ response to a positive externality, like a new technology, is to help the party creating the positive externality receive a greater share of the social benefits. In the case of vaccines, like flu shots, an effective policy might be to provide a subsidy to those who choose to get vaccinated.

private sector

If the ________ does not have sufficient incentive to carry out research and development, one possibility is for the government to fund such work directly.

1960s

In the ______ the federal government paid for about two-thirds of the nation's R&D. Over time, the U.S. economy has come to rely much more heavily on industry-funded R&D.

complementary approach

A _______________ to supporting R&D that does not involve the government's close scrutiny of specific projects is to give firms a reduction in taxes depending on how much research and development they do.

nonexcludable and nonrivalrous.

To be categorized as a public good, a good must be both ________________

collect payments

Markets often have a difficult time producing public goods because some people will attempt to use the public good without paying for it. The free rider problem can be overcome through measures to assure that users of the public good pay for it. Such measures include government actions, social pressures, and specific situations where markets have discovered a way to _______________.

overharvesting common resources

The problem of ________________________ is not a new one, but ecologist Garret Hardin put the tag "Tragedy of the Commons" to the problem in a 1968 article in the magazine Science. Economists view this as a problem of property rights. Since nobody owns the ocean, or the conch that crawl on the sand beneath it, no one individual has an incentive to protect that resource and responsibly harvest it.

Extension Act

In 1998, Congress passed the Sonny Bono Copyright Term___________ For copyrights owned by companies or other entities, it increased or extended the copyright from 75 years to 95 years after publication.

Copyright Extension Act

For copyrights owned by individuals, the Sonny Bono _____________ increased or extended the copyright coverage from 50 years to 70 years after death.

patents

In countries that already have_______, economic studies show that inventors receive one-third to one-half of the total economic value of their inventions.

biotechnology

In a fast-moving high-technology industry like _______ or semiconductor design, patents may be almost irrelevant because technology is advancing so quickly.

private sector

If the _________ does not have sufficient incentive to carry out research and development, one possibility is for the government to fund such work directly.