Chapter 13: Q.16 (page 316)
Explain why the federal government funds national defense.
The federal government pays national defense to avoid the problem of free riders.
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Why might private markets tend to provide too few incentives for the development of new technology?
When residents in a neighborhood tidy it and keep it neat, there are a number of positive spillovers: higher property values, less crime, happier residents. What types of government policies can encourage neighborhoods to clean up?
Will the demand for borrowing and investing in R&D be higher or lower if there are no external benefits?
In what ways do company investments in research and development create positive externalities?
Assume that the marginal private costs of a firm producing fuel-efficient cars is greater than the marginal social costs. Assume that the marginal private benefits of a firm producing fuel-efficient cars is the same as the marginal social benefits. Discuss one way that the government can try to increase production and sales of fuel efficient cars to the socially desirable amount. Hint: the government is trying to affect production through costs, not benefits.
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