Some economists argue that private firms will not undertake the efficient amount of basic scientific research.

a. Explain why this might be so. In your answer, classify basic research in one of the categories shown in Figure 1.

b. What sort of policy has the United States adopted in response to this problem?

c. It is often argued that this policy increases the technological capability of American producers relative to that of foreign firms. Is this argument consistent with your classification of basic research in part (a)? (Hint: Can excludability apply to some potential beneficiaries of a public good and not others?)