Can you show graphically the presence of externalities for example in the case of research and development expenditures?

Also is this type of externality referred to as the generic case?

thanks....

I don't know what you mean by the "generic case".

However, in general, we graphically show the presence of externalities by drawing two supply curves. First draw your typical supply and demand curves. Here, supply represents the relationship beween price and the quantity suppliers are willing to supply. It also represents the privately borne costs of supplying the particular good. Now draw a second supply curve that adds social costs or subtracts social benefits. (In the case of a positive externalities, the new curve is to the right, in the case of negative externalities (e.g., pollution) the curve is to the left.) The new supply curve now incorporates social costs or benefits.

To illustrate the presence of externalities in the case of research and development (R&D) expenditures, we need to consider the positive externalities associated with it. R&D often generates knowledge and innovations that can benefit society as a whole, not just the firm conducting the research. These benefits may include improved technologies, new products, or advancements in various areas.

To graphically represent this positive externality, we can follow the steps mentioned earlier. First, we draw the standard supply and demand curves, representing the market equilibrium without considering externalities. The supply curve depicts the relationship between the price of the good and the quantity that firms are willing to supply at different prices.

Next, we introduce the concept of social benefits associated with R&D expenditures. These benefits are not fully captured by the individual firms conducting the research, which means the private supply curve does not account for the positive externalities. We need to adjust the supply curve to incorporate these additional benefits.

To do this, we draw a new supply curve that accounts for the social benefits generated by R&D. This curve will be located to the right of the original supply curve, reflecting the positive externalities. The distance between the two supply curves represents the magnitude of the positive externality.

In this graphical representation, we can observe that the private market equilibrium quantity (Q1) and price (P1) do not align with the socially optimal level of output. The socially optimal quantity (Q2) is higher, reflecting the additional benefits to society from R&D. The difference between Q1 and Q2 represents the underallocation of resources by the private market due to the positive externality.

Regarding your query about the "generic case," it is not a commonly used term in the context of externalities. The presence of externalities in different situations can have varying characteristics and implications. Each case has its unique features and requires analysis based on the specific context.

If you could provide more information or clarify your question, I would be happy to assist you further.