An apple grower’s orchard provides nectar to a neighbor’s bees, while the beekeeper’s bees help the apple grower by pollinating the apple blossoms. Use Figure 16.2b to explain why this situation of dual positive externalities might lead to an underallocation of resources to apple growing and to beekeeping. How might this underallocation get resolved via the means suggested by the Coase theorem? FIGURE 16.2 Negative externalitiesand positive externalities. (a) With negativeNegativeStexternalitiesexternalities borne by society, the producers' supplycurve S is to the right of (below) the full-cost curve S,.Consequently, the equilibrium output Q, is greater thanthe optimal output Q. (b) When positive externalitiesaccrue to society, the market demand curve D is to theleft of (below) the full-benefit demand curve D.. As aresult, the equilibrium output Q, is less than theoptimal output Q..PositiveexternalitiesOverallocationUnderallocationQ.QeQe(a)Negative externalities(Ь)Positive externalities

Externality refers to the situation when external costs and benefits are imposed on third parties…

Answered: FIGURE 16.2 Negative externalities and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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An apple grower’s orchard provides nectar to a neighbor’s bees, while the beekeeper’s bees help the apple grower by pollinating the apple blossoms. Use Figure 16.2b to explain why this situation of dual positive externalities might lead to an underallocation of resources to apple growing and to beekeeping. How might this underallocation get resolved via the means suggested by the Coase theorem?

FIGURE 16.2 Negative externalities
and positive externalities. (a) With negative
Negative
St
externalities
externalities borne by society, the producers' supply
curve S is to the right of (below) the full-cost curve S,.
Consequently, the equilibrium output Q, is greater than
the optimal output Q. (b) When positive externalities
accrue to society, the market demand curve D is to the
left of (below) the full-benefit demand curve D.. As a
result, the equilibrium output Q, is less than the
optimal output Q..
Positive
externalities
Overallocation
Underallocation
Q.
Qe
Qe
(a)
Negative externalities
(Ь)
Positive externalities

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