A research institute in Singapore develops a new renewable energy technology that reduces carbon emissions. Other firms in the economy can observe and adapt this technology for their own use. Which type of externality does this represent?

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Question

A research institute in Singapore develops a new renewable energy technology that reduces carbon emissions. Other firms in the economy can observe and adapt this technology for their own use. Which type of externality does this represent?

Accepted Answer

Positive externality of production — Award 1 mark for identifying that knowledge spillovers from research and development are a positive externality arising from the production process. Third parties (other firms) benefit without paying for the innovation. A is incorrect — this is a benefit, not a cost. B and D are incorrect — the externality arises from production (the R&D activity), not consumption.

Answer

Negative externality of production

Answer

Positive externality of production

Answer

Negative externality of consumption

Answer

Positive externality of consumption

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