Considering the incentives for the private market to conduct research and development, we expect that the amount of research and development conducted by the private sector would be _____ the efficient level because of the _____ property of new knowledge.
A) equal to; rivalrous
B) less than; nonrivalrous
C) more than; rivalrous
D) more than; nonrivalrous

Question

Quizplus · Accepted Answer

The private market has an incentive to conduct research and development to create new knowledge which can be used to generate profit. However, the property of new knowledge is nonrivalrous, meaning that once it is produced, it can be used by others without reducing the amount available. This creates a situation where the private market may under-invest in research and development as other firms can benefit from the knowledge without contributing to its creation. Therefore, we expect the amount of research and development conducted by the private sector to be less than the efficient level.

Considering the Incentives for the Private Market to Conduct Research