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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

Can a company be guaranteed all of the social

benefits of a new invention? Why or why not?

The Gizmo Company is planning to develop new household gadgets. Table 13.4 shows the company鈥檚 demand for financial capital for research and development of these gadgets, based on expected rates of return from sales. Now, say that every investment would have an additional 5% social benefit鈥攖hat is, an investment that pays at least a 6% return to the Gizmo Company will pay at least an 11% return for society as a whole; an investment that pays at least 7% for the Gizmo Company will pay at least 12% for society as a whole, and so on. Answer the questions that follow based on this information.

Estimated rate of returnPrivate profits of the firm from an R&D project (in \( millions)
10%\)100
9%\(102
8%\)108
7%\(118
6%\)133
5%\(153
4%\)183
3%$223

a. If the going interest rate is 9%, how much will Gizmo invest in R&D if it receives only the private benefits of this investment?

b. Assume that the interest rate is still 9%. How much will the firm invest if it also receives the social benefits of its investment? (Add an additional 5% return on all levels of investment.)

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

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?

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