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Why might private markets tend to provide too few incentives for the development of new technology?
Externality is impact on the third-party who is not related to the transaction but is effect by thattransaction happening between two parties. A positive externality spreads the benefit to others aswell like innovation, etc. Public goods are those goods which are both non-ival andnonexcludable.In private markets, when some firm is investing of R\&D then they are expecting to get benefitfrom the results of research but many times it becomes difficult to save that research from thecompetitors who would copy and make money without any investment, so basically the firm thatwent with research was at loss comparatively, which acts like negative incentive for firms to gofor R\&D.
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Chapter 13
Positive Externalities and Public Goods
Markets and Welfare
The Economics of the Public Sector
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there are costs and there are benefits associated with the development of new technology. And there's a marketplace for that so we can draw a supply and demand curve curves. Excuse me, and we can see that these air on Lee going to take into account the private costs and the private benefits of developing new technology. But if you take into account the public costs in the public benefits, what do you find? You find that the demand is actually much greater, and therefore your equilibrium quantity is also much greater. So what does that mean? It essentially means that the private marketplace, if left to its own, does not provide enough incentives for the development of new technology to match the benefit that would be gained by the public at large.
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