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Chapter 13: Q.14 (page 316)

Name two public goods and explain why they are public goods.

Short Answer

Expert verified

Police protection and radio broadcasts are two of the public goods.

Step by step solution

01

content Introduction

A nonexcludable and nonrival public good is one that is difficult for market enterprises to sell to individual clients. Public goods include a wide range of government services.

02

Content Explanation

Police protection is said to be an example of public good. Protecting only a few people in the community from burglary while excluding others would be challenging. Providing security to some people entails safeguarding the entire society from burglary. Radio transmissions are another example. It will be difficult to prevent anyone from receiving a radio signal after it has been broadcast. Furthermore, other people will not be stopped from getting the radio broadcast if one person is listening to it.

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Most popular questions from this chapter

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.)

Suppose that Sony's R&D investment in digital devices has increased profits by 20%. Is this a private or social benefit?

Can a company be guaranteed all of the social

benefits of a new invention? Why or why not?

Is it inevitable that government must become

involved in supporting investments in new technology?

Do market demand curves reflect positive externalities? Why or why not?
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