An innovator usually enjoys only a temporary advantage, because competitors eventually imitate successful new products and methods.
Correct Answer
True
True. Firms innovate to earn higher profits, but once rivals copy the idea, prices and profits are pushed back toward normal levels.
Category: Private vs Social Benefits
Question 2
When research creates spillover benefits, the social demand curve for research funds lies above the firm's private demand curve.
Correct Answer
True
True. At each interest rate, society would want more research than the firm does, because society counts both the firm's gains and the benefits to others.
Category: Private vs Social Benefits
Question 3
An inventor who holds a patent captures all of the social benefits that the invention produces.
Correct Answer
False
False. Even with a patent, much of the value of an invention goes to customers and to other firms that build on the idea, so the inventor keeps only part of the total benefit.
Category: Private vs Social Benefits
Question 4
Research paid for by the government must stay inside the agency that funded it and cannot be used by private firms.
Correct Answer
False
False. A key benefit of government-funded research is that the resulting technology can be made broadly available to many firms.
Category: Government Support for R&D
Question 5
Every useful business innovation, including a new way of organizing a factory, can be protected by a patent.
Correct Answer
False
False. Some innovations, such as a better way to organize a factory or train employees, cannot be patented or copyrighted, so imitators can use them freely.
Category: Intellectual Property
Question 6
In fast-changing fields such as semiconductor design, patents may matter less because technology can become outdated quickly.
Correct Answer
True
True. When products are replaced within a few years, being first to market often matters more than legal protection that lasts much longer than the product's useful life.
Category: Intellectual Property
Question 7
Since the 1960s, the federal government's share of U.S. research and development spending has grown, while the share paid by private industry has shrunk.
Correct Answer
False
False. In the 1960s the federal government paid for about two-thirds of U.S. research and development, and since then its share has fallen while private industry's share has grown. Today industry funds most U.S. research and development, and federal spending concentrates on areas where private firms are less active.
Category: Government Support for R&D
Question 8
Under a research tax credit, a firm's tax bill is reduced based on how much research and development it performs.
Correct Answer
True
True. The tax credit lowers the after-tax cost of research, encouraging firms to do more without the government choosing specific projects.
Category: Government Support for R&D
Question 9
A firm that builds a new factory typically captures only a small fraction of the benefits from that investment.
Correct Answer
False
False. A firm investing in ordinary physical capital such as a factory keeps essentially all the benefits, which is the contrast that makes research investment different.
Category: Private vs Social Benefits
Question 10
National defense is excludable, because the government can easily keep people who do not pay taxes from being protected.
Correct Answer
False
False. National defense is nonexcludable: protecting the country protects everyone who lives in it, including people who pay nothing or oppose the policy.
Category: Public Goods
Question 11
Every good or service that a government pays for with tax revenue is a public good in the economic sense.
Correct Answer
False
False. Economists define a public good strictly as one that is nonexcludable and nonrivalrous, and many government-funded services do not meet both conditions.
Category: Public Goods
Question 12
A good that creates positive externalities can still be produced and sold by private firms.
Correct Answer
True
True. Private schools and private companies that profit from their inventions both provide goods with spillover benefits, so positive externalities and public goods are not the same thing.
Category: Positive Externalities
Question 13
Police protection that patrols an entire neighborhood has characteristics of a public good, because protecting some residents also protects others.
Correct Answer
True
True. Patrols generally protect everyone in the area at once, so it is hard to exclude nonpayers and one resident's protection does not reduce a neighbor's.
Category: Public Goods
Question 14
Free riding can prevent a public good from being provided at all, even when everyone would be better off if all contributed.
Correct Answer
True
True. If each person reasons that they can enjoy the good without paying, private contributions may never cover the cost, so the good is not built despite its value.
Category: Free Rider Problem
Question 15
The free rider problem arises because people have an incentive to pay more than their fair share for a public good.
Correct Answer
False
False. The problem arises because people have an incentive to pay less than their share, or nothing, since they can use the good either way.
Category: Free Rider Problem
Question 16
Economists often view the tragedy of the commons as a problem of poorly defined property rights.
Correct Answer
True
True. Because no one owns the shared resource, no one has an incentive to conserve it, so remedies often involve limiting or assigning rights to use it.
Category: Common Resources
Question 17
Under a catch share system, each licensed fisher may harvest as many fish as they wish.
Correct Answer
False
False. A catch share system sets a total allowable catch and divides it among fishers, so each one has a limited share.
Category: Common Resources
Question 18
A public park that is free to enter but charges for parking and picnic reservations combines public and private ways of paying for a good.
Correct Answer
True
True. Entry is paid for collectively, while fees on excludable extras such as parking let users of those services cover part of the cost.
Category: Public Goods
Question 19
A vaccination benefits only the person who receives it, so it creates no spillover benefits for others.
Correct Answer
False
False. A vaccinated person is less likely to spread disease, so vaccination also protects people around them, which is a positive externality.
Category: Positive Externalities
Question 20
Restoring an older home can create a positive externality by raising the value of nearby properties.
Correct Answer
True
True. Neighbors gain higher property values without paying for the renovation, so part of the benefit spills over to third parties.
Category: Positive Externalities