alleryStart learning →The reason technology counts as a positive externality is that its benefits reach:
AOnly the innovating firm
BOnly the government body
CNobody in the economy
DBeyond the innovating firm
Answer & Solution
Correct answer: D. Beyond the innovating firm
1. An externality is a benefit or cost falling on someone outside the transaction.
2. Technology may be the most prominent example of a positive externality.
3. New knowledge often becomes what economists refer to as a public good.
4. So the innovator's discovery raises the productivity of firms that paid nothing for it.
5. Capturing only part of the gain is exactly why private investment falls short.
_Source: OpenStax Principles of Microeconomics for AP(R) Courses 2e (CC BY 4.0), Ch 13 'Positive Externalities and Public Goods', sections 13.1-13.4_
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