Review Questions

8 . Are the following goods non-rival in consumption? a. slice of pizza b. laptop computer c. public radio d. ice cream cone

Review Questions

9 . In what ways do company investments in research and development create positive externalities? 10 . Will the demand for borrowing and investing in R&D be higher or lower if there are no external benefits? 11 . Why might private markets tend to provide too few incentives for the development of new technology? 12 . What can government do to encourage the development of new technology? 13 . What are the two key characteristics of public goods? 14 . Name two public goods and explain why they are public goods. 15 . What is the free rider problem? 16 . Explain why the federal government funds national defense.

Critical Thinking Questions

17 . Can a company be guaranteed all of the social benefits of a new invention? Why or why not? 18 . Is it inevitable that government must become involved in supporting investments in new technology? 19 . How do public television stations, like PBS, try to overcome the free rider problem? 20 . Why is a football game on ESPN a quasi-public good but a game on the NBC, CBS, or ABC is a public good? 21 . Provide two examples of goods/services that are classified as private goods/services even though they are provided by a federal government. 22 . Radio stations, tornado sirens, light houses, and street lights are all public goods in that all are nonrivalrous and nonexclusionary. Therefore why does the government provide tornado sirens, street lights and light houses but not radio stations (other than PBS stations)?

Problems

23 . HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow HighFlyer Airlines to give passengers more comfort and sell more tickets at a higher price. However, redesigning the cabin means rethinking many other elements of the airplane as well, like engine and luggage placement and the most efficient shape of the plane for moving through the air. HighFlyer Airlines has developed a list of possible methods to increase cabin space, along with estimates of how these approaches would affect the plane's operating costs and ticket sales. Based on these estimates, Table 13.5 shows the value of R&D projects that provide at least a certain private rate of return. Column 1 = Private Rate of Return. Column 2 = Value of R&D Projects that Return at Least the Private Rate of Return to HighFlyer Airlines. Use the data to answer the following questions.