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Technological Spillovers


In the diagram below we assume there has been a positive externality in production in the form of a technology spillover. The use of new technology has brought down costs to other producers - social cost lies below private cost and output of the product (i.e. a new robot or piece of software) should be encouraged towards output Qb rather than the private optimum Qa. This might be achieved through the use of a producer subsidy that reduces the cost of production / consumption and encourages an expansion of supply in the market






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