Question

An apple grower’s orchard provides nectar to a neighbor’s bees, while the beekeeper’s bees help the apple grower by pollinating his apple blossoms.

A positive externality Price 2 19, 19, Quantity

1) Consider the figure above. This situation of dual positive externalities might lead to an underallocation of resources to both apple growing and beekeeping because there are spillover

A.	costs for the apple growers but spillover benefits for the beekeepers.
B.	benefits for the apple growers but spillover costs for the beekeepers.
C.	benefits for both the apple growers and beekeepers.
D.	benefits for the apple growers but not the beekeepers.

2) This misallocation can be resolved via the means suggested by the Coase theorem because

	A. apple growers and beekeepers can benefit from the other, so they will negotiate an optimal solution.
	B. apple growers and beekeepers can trade products with each other, so they will merge into one firm.
	C. apple growers can rely on nearby bees at no cost.
	D. beekeepers can rely on nearby orchards at no cost.

Answer 1

a) An apple grower's orchard provides nectar to a neighbor's bees, while the beekeeper's bees help the apple grower by pollinating his apple blossoms. This situation of dual positive externalities might lead to an under allocation of resources to both apple growing and beekeeping because there are spillover benefits for both apple growers and beekeepers. Thus, option C is correct. b) This misallocation can be resolved via the means suggested by the Coase theorem because apple growers and beekeepers can benefit from the other, so they will negotiate an optimal solution. Thus, option A is correct.