TAILIEUCHUNG - Ten Principles of Economics - Part 23

Ten Principles of Economics - Part 23. Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another. | CHAPTER 11 PUBLIC GOODS AND COMMON RESOURCES 229 I like the concept if we can do it with no new taxes. that anyone can use without charge. Because knowledge is a public good profitseeking firms tend to free ride on the knowledge created by others and as a result devote too few resources to the creation of knowledge. In evaluating the appropriate policy toward knowledge creation it is important to distinguish general knowledge from specific technological knowledge. Specific technological knowledge such as the invention of a better battery can be patented. The inventor thus obtains much of the benefit of his invention although certainly not all of it. By contrast a mathematician cannot patent a theorem such general knowledge is freely available to everyone. In other words the patent system makes specific technological knowledge excludable whereas general knowledge is not excludable. The government tries to provide the public good of general knowledge in various ways. Government agencies such as the National Institutes of Health and the National Science Foundation subsidize basic research in medicine mathematics physics chemistry biology and even economics. Some people justify government funding of the space program on the grounds that it adds to society s pool of knowledge. Certainly many private goods including bullet-proof vests and the instant drink Tang use materials that were first developed by scientists and engineers trying to land a man on the moon. Determining the appropriate level of governmental support for these endeavors is difficult because the benefits are hard to measure. Moreover the members of Congress who appropriate funds for research usually have little expertise in science and therefore are not in the best position to judge what lines of research will produce the largest benefits. Fighting Poverty Many government programs are aimed at helping the poor. The welfare system officially called Temporary Assistance for Needy Families provides a small

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