Chapter 13 Microeconomics

Which of the following would be classified as a positive externality?

a surcharge for ambulance service is shifted to property taxes

reselling outdated textbooks to under-funded public schools

removing government education subsidies for public schools

converting a derelict empty lot to a public vegetable garden

converting a derelict empty lot to a public vegetable garden

Ideally, a patent should cover a long enough period of time for the inventor to , but that period should not be so long that it allows the inventor to .

earn a healthy return; charge a high monopoly price permanently

When a firm invests in new technology, the that the firm receives are .

private benefits; only a portion of the overall social benefits

The federal government funds of the nation's basic research, much of which is .

about half; conducted at colleges and universities

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?

not taking into account the negative externality associated with social benefit

not taking into account the positive externality associated with social benefit

have reasonable rates of return not based on a notion of unearned social benefits

develop ways to provide a greater share of the social benefits to the innovator

develop ways to provide a greater share of the social benefits to the innovator

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?

government can use public funds to pay for the R&D activities directly.

setting up government-run laboratories to ensure public benefits arise from public funding.

direct all public R&D funding to colleges and universities to ensure public benefits arise from public funding.

ensure that firms are not entering cooperative ventures to lessen competition, as well as b and c above.

government can use public funds to pay for the R&D activities directly.

Market competition can provide for ,

the needed incentive; discovering new technologies

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.

dirty, prisoner's dilemma

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

at a low cost, firms demand a large quantity, as R&D projects will likely return a higher rate.

Both Wisconsin and Illinois border Lake Michigan. The lake is becoming polluted and both states are deciding whether or not to clean it. If Wisconsin decides to clean the lake it will cost 1200 and generate social benefits of 1500 - however, Wisconsin will receive only 1100 of those social benefits while neighbor Illinois will receive the other 400. If Illinois cleans the lake, it will cost them 700 and generate social benefits of 900 - however, Illinois will receive only 600 of those benefits, Wisconsin will receive the remaining 300. If a state does not clean the lake, it experiences a cost of $0. If Wisconsin does not clean the lake and Illinois does then the payoffs will be

Wisconsin gains 300, Illinois loses 100

An individual who wants others to pay for public goods, but plans to use those goods for their own purposes, is often referred to as a _.

free rider

Under current U.S. copyright legislation, works produced on a for-hire basis and owned by firms enjoy monopoly protection for

95 years from the date of publication.

Which of the following would most likely be identified as being the ultimate goal of public policies that pertain to technology?

to help inventors earn higher rates of return

to help inventors earn reasonable returns

to encourage a stream of inventions that monetarily benefit the inventor.

to encourage a stream of invention that benefits the whole of society.

to encourage a stream of invention that benefits the whole of society.

Which of the following circumstances would encourage I'MaPharmaCo. to increase research and development activities?

cost of financial capital is high

patent term expires in 20 years

cost of financial capital is low

a low rate of return is likely

cost of financial capital is low

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

have less incentive to innovate to the extent that the whole of society desires.

Which of the following mechanisms will increase the rate of return that can be earned by inventors of new technology? A. Intellectual property rights B. Government R&D grants C. Cooperative research ventures between companies D. Patents, copyrights, and each of the above

patents, copyrights, and each of the above

In economic terms, when I'mASoftwareCo. invests in new technology innovations,

positive externalities arise.

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

competitors may find a way to adapt and copy the underlying idea without incurring R&D costs.

Why did Gordon Gould have to endure a lengthy legal battle in order to receive a patent for his innovative laser idea concocted in 1957?

he delayed applying to patent his idea, mistakenly believing he needed to have a working laser to apply

Raven Farms raises a substantial number of bees and uses the honey to produce its own skin healing cream. Raven Farms is situated next to the Oakcreek Apple Orchard. The bees from Raven Farms pollinate Oakcreek's apple trees. In this instance, Raven Farms

provides more social benefits than it derives in private benefits.

I'mAComputerCo. would likely be more willing to undertake an innovative research project to reduce the amount of electricity required to run its computers if there were some form of guarantee that if it succeeded,

it could sell the new computers as a monopoly for at least a few years.

The difference between playing a board game and a playing a video game is the

technology of the video game

In order for a good to be classified as _, when one person uses the good, others are also able to use it.

nonrivalrous

A complementary approach to supporting R&D that does not involve the government's close scrutiny of particular R&D projects is to give firms

a reduction in corporate taxes based on amount of R&D performed.

If the research and development efforts of a firm have ended in failure, then

the firm could be driven out of business.

and/or

the firm will suffer losses.

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 .

one-third to one-half; already had patents

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

which of the vast number of proposed projects are worthwhile

If the firm were to receive a price based on both private and social benefits, the equilibrium price and quantity would be

Price Qd Qs if Firm Also Receives Social Benefit

$16 740 740

$17 680 770

$18 620 800
$19 560 830

$16, 740

Paddy and Mick are the only two inhabitants of a small island off the coast of Ireland. They burn coal to keep their houses warm at night. However, this coal burning is harming the air quality on their island. Both Paddy and Mick could install air filters on their chimneys. These filters cost 50 each. Each filter provides a social benefit of 80, but those benefits are divided equally among Paddy and Mick. If both Paddy and Mick install the filters

both will gain 30

Government has a variety of policies that allow inventors to , such as the granting patents and .

receive an increased rate of return; subsidization of research and development

Both Wisconsin and Illinois border Lake Michigan. The lake is becoming polluted and both states are deciding whether or not to clean it. If Wisconsin decides to clean the lake it will cost 1200 and generate social benefits of 1500 - however, Wisconsin will receive only 1100 of those social benefits while neighbor Illinois will receive the other 400. If Illinois cleans the lake, it will cost them 700 and generate social benefits of 900 - however, Illinois will receive only 600 of those benefits, Wisconsin will receive the remaining 300. If a state does not clean the lake, it experiences a cost of $0. If both states clean the lake, the payoffs will be

Wisconsin gains 200, Illinois gains 300

Some studies done by economists have found that the original inventor receives _ from innovations, while other businesses and new product users receive the rest of the benefit.

one-third to one-half of the total economic benefits

It is commonly understood that every invention

often results in new technology and all of the above.

Both Wisconsin and Illinois border Lake Michigan. The lake is becoming polluted and both states are deciding whether or not to clean it. If Wisconsin decides to clean the lake it will cost 1200 and generate social benefits of 1500 - however, Wisconsin will receive only 1100 of those social benefits while neighbor Illinois will receive the other 400. If Illinois cleans the lake, it will cost them 700 and generate social benefits of 900 - however, Illinois will receive only 600 of those benefits, Wisconsin will receive the remaining 300. If a state does not clean the lake, it experiences a cost of $0. In the absence of any agreement, the outcome of this game will be

neither state cleaning the lake

A public good is a good that is _, and thus is difficult for market producers to sell to individual consumers.

nonexcludable and nonrivalrous

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

the public good may never be provided.

Many economists would view market competition as supporting the invention of new technology because it

encourages methods of producing existing products at less cost.

encourages creation of products with desirable characteristics.

provides short-term above-normal profits,

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

modernize, update, and restore homes in run down neighborhoods to decrease littering

find ways to account for the social costs of the negative externality in economic decisions

encourage high standards of public education to increase innovation capability of youth

assist the private party creating the negative externality to receive more social benefits

find ways to account for the social costs of the negative externality in economic decisions

When technology is advancing so quickly, even a patent from, say, two years ago may be , because .

completely outdated; no firm is relying on that technology any longer

A highly innovative firm operating in a competitive market will usually have

some time before competitors catch up to its innovations.

Generally, market competition and technology can

support each other or oppose each other

A lighthouse, where maintenance fees are paid for by charitable contributions, is

nonrivalrous and nonexcludable

Once its patent application has been accepted, a firm is able to earn __ on its product, which _.

monopoly profits; offers an incentive for research and development to take place

Market competition may sometimes encourage a firm to innovate out of fear because of the perception that

they will inevitably fall behind other competitors seeking out innovations.

When it is costly or impossible to exclude someone who hasn't paid to use a particular good from using it, then that good is classified as being

nonexcludable

If a small electric automobile manufacturer is able to gain the social return generated by its electric motor, its demand for financial capital would

shift to the right.