Multiple Choice
Which of the following public policies addressing externalities is most likely to favor businesses?
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7. Externalities
Public Solutions to Externalities
Multiple Choice
A benefit to society of the patent and copyright laws is that those laws:
A
reduce the need for government intervention in all markets
B
eliminate all negative externalities in the market
C
encourage innovation by granting creators exclusive rights to their works
D
guarantee that all products are provided at zero cost to consumers
Verified step by step guidance1
Understand the role of patent and copyright laws in microeconomics: these laws grant creators exclusive rights to their inventions or works for a limited time.
Recognize that exclusive rights create incentives for innovation by allowing creators to potentially earn profits from their creations, which encourages investment in research and development.
Analyze how these laws affect market outcomes: by protecting intellectual property, they help internalize the positive externality of innovation, which might otherwise be underprovided.
Consider why the other options are incorrect: patent laws do not eliminate all negative externalities, nor do they guarantee zero cost products, and they do not necessarily reduce the need for all government intervention.
Conclude that the primary societal benefit of patent and copyright laws is to encourage innovation through exclusive rights, which aligns with the correct answer.
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