Final answer:
The patent system transforms basic research into a private good by granting temporary exclusive rights to innovators, incentivizing the creation of new technologies and providing a return on their investments.
Step-by-step explanation:
When the government created the patent system, basic research effectively became a private good.
Previously, basic research was considered a public good because it was non-excludable and non-rivalrous, meaning everyone could benefit without diminishing the good's value to others, and no one could be effectively excluded from its use. This characteristic often leads to underinvestment in public goods, as private entities may not see adequate returns for their efforts. To incentivize innovation, the government established a patent system, which allows inventors to become the sole producers of their inventions for a period, usually 20 years. This exclusivity turns the fruits of basic research into a private good by making it excludable (others are legally barred from using the patented invention without permission) and rivalrous (the patent holder controls the supply and can profit from it).
Thus, the introduction of patents for innovations derived from basic research means that these innovations can be considered private goods, despite the existence of positive externalities. Positive externalities, such as knowledge spillovers that benefit society, do not by themselves change the nature of the good. They simply point to additional social benefits beyond the private returns to the innovator.