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Chapter 13: Q.16 (page 316)

Explain why the federal government funds national defense.

Short Answer

Expert verified

The federal government pays national defense to avoid the problem of free riders.

Step by step solution

01

Content Introduction

Individuals who want others to fund a public good and then intend to use the product themselves are known as free riders.

02

Content Explanation

Because it is nonexcludable and non-rival, national defense is a public benefit. If private enterprises are in charge, no one will be motivated to pay since they would be able to take benefit of others' services. However, there would be no national defense if everyone tried to take advantage of the system.

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Most popular questions from this chapter

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.

Private rate of returnValue of R&D
12%\(100
10%\)200
8%\(300
6%\)400
4%$500

a. If the opportunity cost of financial capital for HighFlyer Airlines is 6%, how much should the firm invest in R&D?

b. Assume that the social rate of return for R&D is an additional 2% on top of the private return; that is, an R&D investment that had a 7% private return to HighFlyer Airlines would have a 9% social return. How much investment is socially optimal at the 6% interest rate?

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

What are the two key characteristics of public goods?

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?

The Junkbuyers Company travels from home to home, looking for opportunities to buy items that would otherwise end up with the garbage, but which the company can resell or recycle. Which will be larger, the private or the social benefits?
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