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Chapter 13: Q.10 (page 316)

Will the demand for borrowing and investing in R&D be higher or lower if there are no external benefits?

Short Answer

Expert verified

Demand would be higher if there are no external benefits.

Step by step solution

01

Content Introduction

External benefits are positive effects on a third party or parties that did not purchase the product or service that caused the externalities.

02

Content Explanation

Demand would be higher if only enterprises investing in research and development could benefit from positive externality. However, because businesses are mainly concerned with private rewards, demand for borrowing and investing should remain unchanged if enterprises receive only half as much in social benefits.

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