Question

Which of the following is true about general knowledge? It generates both a positive and a negative externality. O It does not generate any externalities. It generates a negative externality. O It generates a positive externality. As a result, private firms would not ? undertake the efficient amount of basic scientific research. Which of the following policies has the United States adopted in response to this problem? Check all that apply. Subsidizing research through the National Institutes of Health Taxing revenue from the National Science Foundation A progressive income tax It is often argued that this policy increases the technological capability of American producers relative to that of foreign firms. True or False: This argument is correct only if the knowledge provided by basic research is not rival in consumption. True False

Answer 1

Externality is the cost or benefit that is affected to the other party who is not involved in the actions An externality exists when some of the costs of producing a product affect people unable, within a market system, to influence how much of a product should be produced Positive externality occurs when an individual's decision regarding production or consumption of a good or services increases the welfare of another individual, who is not related to the production or consumption of the good or service. Negative externality occurs when an individual's decision regarding production or consumption of a good or services reduces the welfare of another individual, who is not related to the production or consumption of the good or service. The statement that is true about general knowledge is it generates a positive externality Thus, the correct answer is option D As a result, private firms would not undertake the efficient amount of basic scientific research The policy that has been adopted in response to this problem is Subsidizing research through the National Institute of Health (As the benefits from innovation overweighs the cost of innovation) This argument is correct only if the knowledge provided by basic research is non rival in consumptiorn

If it is non-rival then private investment towards R&D will decrease thus leading to less R&D Thus, it is a false statement