A patent is a legal right that lets an inventor be the only one allowed to make, use or sell a new invention for a limited number of years.
Missing Word
patent
A patent is a form of intellectual property for inventions. By blocking imitators for a set term, it lets inventors earn a return on their research.
Category: Intellectual Property
Question 2
A copyright gives the creator of an original book, song, film or photograph the exclusive legal right to reproduce and sell that work.
Missing Word
copyright
A copyright is the intellectual property protection for creative works, as opposed to inventions, which are protected by patents.
Category: Intellectual Property
Question 3
Economists call a spillover to third parties outside a transaction, whether helpful or harmful, an externality.
Missing Word
externality
An externality is a cost or benefit that falls on people who are not the buyer or seller in a transaction. A helpful one, such as the protection others gain when you get a flu shot, is a positive externality; a harmful one, such as factory smoke, is a negative externality.
Category: Positive Externalities
Question 4
Grass on a shared grazing pasture shows rivalry in consumption: what one herder's cattle eat leaves less for everyone else's.
Missing Word
rivalry
Rivalry means one person's use of a good reduces the amount left for others. Common resources combine this trait with being hard to exclude people from, which is why they tend to be overused.
Category: Common Resources
Question 5
Spending on research and development is a form of investment: a firm pays costs today in the hope of earning a return later.
Missing Word
investment
An investment is spending now that is expected to pay off in the future. Firms judge research projects by their expected rate of return, the estimated payoff, and fund a project only when that return justifies the cost of the funds.
Category: Private vs Social Benefits
Question 6
Economists define a public good by 2 traits: it is costly or impossible to keep nonpayers from using it, and one person's use does not reduce what is available to others.
Missing Word
2
A public good is defined by two traits: it is nonexcludable, so nonpayers cannot easily be kept out, and nonrivalrous, so one person's use leaves no less for anyone else. National defense is the standard example.
Category: Public Goods
Question 7
Without government action, a market for a good with spillover benefits settles at its equilibrium, where marginal private benefit equals marginal private cost, producing less than the socially optimal quantity.
Missing Word
equilibrium
The market equilibrium is where the buyers' marginal private benefit equals the sellers' marginal private cost. Because buyers leave out the benefits to third parties, this quantity falls short of the social optimum, where marginal social benefit equals marginal cost.
Category: Positive Externalities
Question 8
To correct for spillover benefits, a government can pay a per-unit subsidy that lowers what buyers pay, as with vouchers for flu shots.
Missing Word
subsidy
A subsidy is a government payment that lowers the price buyers face. Setting it equal to the spillover benefit per unit moves the market to the socially optimal quantity.
Category: Positive Externalities
Question 9
For a good with spillover benefits, the market demand curve reflects only the marginal private benefit that buyers receive, not the gains to others.
Missing Word
demand
A market demand curve shows what buyers are willing to pay, and buyers count only the benefit they themselves receive. The marginal social benefit curve adds the spillover benefits to third parties on top of that private benefit.
Category: Private vs Social Benefits
Question 10
A good is excludable when its seller can keep anyone who has not paid from using it, as a movie theater does by checking tickets.
Missing Word
excludable
Excludable goods can be sold in markets because nonpayers can be shut out. Goods that lack this trait invite free riding.
Category: Public Goods
Question 11
In the United States, an inventor's exclusive legal rights to a new invention normally last 20 years from the date the application is filed.
Missing Word
20
A standard U.S. patent lasts 20 years from filing, long enough to reward the inventor but not so long that monopoly pricing continues indefinitely.
Category: Intellectual Property
Question 12
Exclusive legal rights to an invention give the inventor a temporary monopoly, making that firm the only legal seller of the product.
Missing Word
monopoly
A monopoly is a market with a single seller. The temporary profits it allows are the incentive that legal protection of inventions is meant to create.
Category: Intellectual Property
Question 13
Because citizens are legally required to pay taxes, government funding keeps people from free riding on goods such as national defense.
Missing Word
taxes
Taxes are compulsory payments to government. Because no one can opt out, everyone contributes to the public good, which solves the free rider problem.
Category: Free Rider Problem
Question 14
A per-unit payment from the government to sellers of flu shots lowers their cost of providing each shot, which shifts the supply curve for shots to the right.
Missing Word
supply
A per-unit payment to sellers lowers their marginal cost, so at every price they are willing to offer more shots, a rightward shift of the supply curve. The larger market quantity moves the market toward the socially optimal number of shots.
Category: Positive Externalities
Question 15
Because buyers ignore the benefits that spill over to others, the marginal private benefit curve for flu shots lies to the left of the marginal social benefit curve.
Missing Word
left
Marginal social benefit equals marginal private benefit plus the spillover benefit, so at every quantity society values a shot more than the buyer does. That puts the marginal private benefit curve to the left of, and below, the marginal social benefit curve.
Category: Positive Externalities