Invention and Innovation, The Public Good, and the Positive Externalities

Problem set 1
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1. How would you distinguish between an invention and an innovation?
Invention refers to the development, creation, and introduction of a process or product for the first time. On the other hand, innovation occurs when an existing product, service, or process is significantly improved. In other words, innovation and invention are related but they are not identical. For instance, the mobile phone was invented in 1973 when Martin Cooper, a Motorola employee, placed a call to Bell Lab headquarters in New Jersey from Manhattan. In 2007, Apple Inc rethought how a mobile phone could be used, improved it, and came up with the first iPhone, which revolutionized technology. The connection between the creation of mobile phones and iPhone implies that innovation flows from invention
2. What are the key characteristics of a public good? Is all new knowledge a public good?
The key characteristics of a public good are nonexcludable and nonrivalrous. Nonrivalrous insinuates that even if a person is using a good, he/she cannot prevent others from utilizing the good. On the other hand, nonexcludable signifies that it is impossible and costly for an individual to exclude others from using a good. Currently, the internet has made it easy to access new knowledge. However, access to some aspects of new knowledge has been limited by copyright laws and login credentials. As a result, all new knowledge is more of a club good rather than a public good.
3. What is a positive externality? How does this differ from a public good?
A positive externality is a benefit that originates from an economic transaction and is enjoyed by third parties. For instance, education benefits both the students and society as a whole through the acquisition of skills that improve production and service delivery. Although public goods such as police protection have positive externalities, not all goods with positive externalities are public goods (Cornes and Sandler, 2016). For instance, improvement in education services has huge positive externalities but it can be done and provided by private firms.
4. How does innovation create positive externalities? Why are they a problem?
If companies invent or create products, they enjoy all the economic benefits that result from the invention. However, if they innovate products or services by investing in existin...