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Some economists argue that private firms will not undertake the efficient amount of basic scientific research.
a. Explain why this might be so. Classify basic research in one of the categories; private goods, natural monopolies, common resources, public goods
b. What sort of policy has the United States adopted in response to this problem?
c. It is often argued that this policy increases the technological capability of American producers relative to that of foreign firms. Is this argument consistent with your classification of basic research in part (a)?
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Following are parameters for an open economy open economy where C=10+.8(y-T); I=10 G=10 T=10 and imports and exports are given by IM=.3Y and X=.3Y* respectively where Y is foreign output.
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