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Chapter 13: Q. 18 (page 316)

Is it inevitable that government must become

involved in supporting investments in new technology?

Short Answer

Expert verified

It isn't inevitable that authorities ought to grow to be concerned in assisting investments in new era. private firms will pick out to put money into new era and create new thoughts and products to obtain the non-public blessings and opposition among companies will in addition incentivize this technique. but, this degree of funding can be less than socially finest.

Step by step solution

01

Concept Introduction

It's miles in no way a foregone conclusion that the government wishes to become concerned in the free market so one can support investments in new generation. now and again they may be going to be very small gains from doing that. And whilst the video games are small sufficient, what takes place is that the value of government involvement does no longer certainly make sense.

02

Explanation

In light of the small profits so government has cost in terms of, it wishes taxation to run. It has fee within the in so far because it's an imperfectly mechanism. So when the profits air small, it typically would not make feel for the government to emerge as involved. however there also are different mechanisms, which include social pressures, that can be at work. And on occasion those social pressures are amazing sufficient that they may be a valuable incentive to motive people to take into account no longer simply personal advantages but also public blessings. And that could very frequently result in an growth in investments in new era as much as the socially ultimate stage.

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Most popular questions from this chapter

The Junkbuyers Company travels from home to home, looking for opportunities to buy items that would otherwise end up with the garbage, but which the company can resell or recycle. Which will be larger, the private or the social benefits?

Education provides both private benefits to those who receive it and broader social benefits for the economy as a whole. Think about the types of policies a government can follow to address the issue of positive spillovers in technology and then suggest a parallel set of policies that governments could follow for addressing positive externalities in education.

Which of the following goods or services are nonexcludable?

a. police protection

b. streaming music from satellite transmission programs

c. roads

d. primary education

e. cell phone service

The Gizmo Company is planning to develop new household gadgets. Table 13.4 shows the company’s demand for financial capital for research and development of these gadgets, based on expected rates of return from sales. Now, say that every investment would have an additional 5% social benefit—that is, an investment that pays at least a 6% return to the Gizmo Company will pay at least an 11% return for society as a whole; an investment that pays at least 7% for the Gizmo Company will pay at least 12% for society as a whole, and so on. Answer the questions that follow based on this information.

Estimated rate of returnPrivate profits of the firm from an R&D project (in \( millions)
10%\)100
9%\(102
8%\)108
7%\(118
6%\)133
5%\(153
4%\)183
3%$223

a. If the going interest rate is 9%, how much will Gizmo invest in R&D if it receives only the private benefits of this investment?

b. Assume that the interest rate is still 9%. How much will the firm invest if it also receives the social benefits of its investment? (Add an additional 5% return on all levels of investment.)

What can government do to encourage the development of new technology?
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