1. The creation of knowledge is a public good. Because knowledge is a public good, profit-seeking...
1. The creation of knowledge is a public good. Because knowledge is a public good, profit-seeking firms tend to free-ride on the knowledge created by others and, as a result, devote too few resources to the creation of knowledge. List and discuss 3 ways that the government corrects for this resource allocation problem.
Homework Answers
Resource allocation problem
In society, the resource allocation problem arises because of its limitations and scarcity. It is responsible to create a free rider problem. Therefore, to solve the free rising problem, the government can use the following solutions
Taxes:
By requiring profit making business organizations to pay extra taxes for using public goods as business resources, there would be no such problems. The government's stringent tax policy can easily solve such a free rider problem.
The additional compulsory payment as a social responsibility
The reason behind using public good by a private organization is profit maximization and cost minimization. Now, the additional payment responsibility scheme by the government will increase the cost of such private organizations. As a result of that, they will be demotivated and such free-riding problem will be resolved from the society.
Making a ‘knowledge’ private good
If the government can limit the use of public goods, by strict rules and regulations, there is a possibility to solve the free rising issue.
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