Module 12: Positive Externalities and Public Goods
Section outline
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We do not often think of the government when we consider our leading products and entrepreneurs. We think of Apple, Google, Lyft, Tesla, Fitbit, and so on—creative innovators who built on the tools provided by these government efforts, using them in transformative ways. Competitive, private sector markets are often resistant to the risks involved with large-scale innovation, because failed experiments and lack of uptake lead to massive corporate and personal losses. Governments can take on riskier research and development projects. Because government spending is fueled by taxpayers, and all innovation leads to some level of employment change, these proposals are certainly complex and challenging to implement. This chapter deals with some of these issues: Will private companies be willing to invest in new technology? In what ways does new technology have positive externalities? What motivates inventors? What role should government play in encouraging research and technology? Are there certain types of goods that markets fail to provide efficiently, and that only government can produce? What happens when consumption or production of a product creates positive externalities?
Upon completion of this module, you will be able to:
- Identify the positive externalities of new technology.
- Explain the difference between private benefits and social benefits and give examples of each.
- Calculate and analyze rates of return
- Explain the effects of intellectual property rights on social and private rates of return.
- Identify three U.S. Government policies and explain how they encourage innovation
- Identify a public good using nonexcludable and non-rival as criteria
- Explain the free rider problem
- Identify several sources of public goods
To achieve these objectives: [Edit these items to match your resources and activities.]
- Read the Module 12 Introduction
- Read Chapter 12 in the course textbook, Microeconomics.
- Complete Module 12 Discussion Forum.
- Complete Module 12 Quiz.
- For course instructors, list any other reading assignments here.
[Include all reading assignments here that are outside of Moodle. Be as
concise as possible. More information can be included in the
third-party section below, if necessary.]
- Complete the [specific activities in the module. Include all in the order you want them completed.]
Module Pressbooks Resources and Activities
You will find the following resources and activities in this module at the Pressbooks website. Click on the links below to access or complete each item.
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Students mustMark as done
Chapter 12 of Introduction to Microeconomics.
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Students mustMark as done
Module 12 In Class Group Activity (hide from students)
Course SLO 1: Identify the basic economic principles that serve as the foundation of economic analysis
Course SLO 3: Analyze the economic impact of government regulation, price setting, and taxes on consumers and producers
Course SLO 4: Explain how externalities affect the efficiency of markets, and what can be done to improve the efficiency of markets in which externalities existCourse SLO 5: Understand how international trade can improve the well-being of the societyModule SLO: 12.2.1 Explain the effects of intellectual property rights on social and private rates of return;
Module SLO: 12.2.2- Identify three U.S. Government policies and explain how they encourage innovation;
Module SLO: 12.3.3 – Identify several sources of public goods
Section 2 of the textbook introduces tools to promote innovation and Section 3 introduces tools to provide a public good, which is a positive externality, but similar tools can be used to improve market outcomes for other positive externalities as well. For this discussion, your task is to:
Discuss at least one benefit and one drawback of your assigned policy type by the criteria listed below:
- Group number #-#; Patents and Intellectual Property Rights
- Group number #-#; Government Support with Research
- Group number #-#; Taxation to Supply a public good
Instructor Notes:
In this prompt, students are tasked to analyze and see potential benefits and drawbacks for policies regarding positive externalities. You may need to realign the groups to better fit the distribution of your individual class. Some benefits and drawbacks include:
Patents and Intellectual Property Rights
Benefit: Promotes innovation, research, and development
Drawback: Expense of acquiring and maintaining intellectual property rights; can create monopoly on the patented/protected product; inventors may not be compensated fairly for their invention in respect to the amount of profit it generates; arbitrary time period for protection; do not work well for every situation, such as a new way of training employees
Government Support with Research
Benefit: Results are often broadly available for firms
Drawback: Cost burden on the taxpayer; funds may not be allocated effectively, serving politics rather than science or economy; embroiled in politics
Taxation to Supply a Public Good
Benefit: Can generate a positive social rate of return. For example, subsidizing public education can increase national health, crime levels, and stability.
Drawback: Cost is placed on taxpayers; may fail to overcome the free rider problem
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