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Chapter 13: Q.2 (page 315)

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

Short Answer

Expert verified

The 20% increased profits is a personal benefit.

Step by step solution

01

Content Introduction

The benefits that a consumer of a product or service receives, or the benefits or procedures that a company invents and captures, are referred to as private benefit. On the other hand, social benefit is the total of private and external benefits.

02

Content Explanation

It is clear that Sony is profiting from the investment. As a result, the 20% rise in profits is a private gain. Sony's investment will be regarded a social benefit if it is not able to collect all of the benefit, perhaps because other corporations swiftly imitate and make close replacements.

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Most popular questions from this chapter

Becky and Sarah are sisters who share a room. Their room can easily get messy, and their parents are always telling them to tidy it. Here are the costs and benefits to both Becky and Sarah, of taking the time to clean their room: If both Becky and Sarah clean, they each spends two hours and get a clean room. If Becky decides not to clean and Sarah does all the cleaning, then Sarah spends 10 hours cleaning (Becky spends 0) but Sarah is exhausted. The same would occur for Becky if Sarah decided not to clean—Becky spends 10 hours and becomes exhausted. If both girls decide not to clean, they both have a dirty room.

a. What is the best outcome for Becky and Sarah? What is the worst outcome? (It would help you to construct a prisoner’s dilemma table.)

b. Unfortunately, we know that the optimal outcome will most likely not happen, and that the sisters probably will choose the worst one instead. Explain what it is about Becky’s and Sarah’s reasoning that will lead them both to choose the worst outcome.

In what ways do company investments in research and development create positive externalities?

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

Why might private markets tend to provide too few incentives for the development of new technology?

Provide two examples of goods/services that are classified as private goods/services even though they are provided by a federal government.
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