University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?
A)tax university researchers
B)offer grants to university researchers
C)eliminate subsidized student loans
D)nothing

Question

Quizplus · Accepted Answer

Offering grants to university researchers would increase the amount of funding available for research, which would incentivize more research to be conducted. This would help reach the socially optimal quantity of university research produced. Taxing university researchers or eliminating subsidized student loans would likely decrease the amount of research produced, which would be counterproductive to the goal of reaching the socially optimal quantity. Doing nothing would not address the issue of the positive externality and would likely lead to an underproduction of research.

University Researchers Create a Positive Externality Because What They Discover