Problem
Some economists will argue that private firms will not undertake the efficient amount of basic scientific research.
A. Explain why this is so and classify basic research in one of the four categories of the goods you learned in chapter 11.
B. Use a supply and demand diagram of the market for basic research. Show on the graph private value, social value, social and private cost whichever is applicable. Clearly show the market equilibrium and optimum equilibrium. Give an intuitive explanation of why the two equilibriums are different. What policy Canada has adopted to reach the optimum level of basic research?
C. It is often argued that policy increases the technological capability of Canadian producers relative to that of foreign firms. Is this argument consistent with your classification of basic research in part (A) above?