The external benefit of honey production is internalized when:
A) farmers receive tax breaks from the government.
B) beekeepers receive tax breaks from the government.
C) farmers pay beekeepers to pollinate their crops.
D) beekeepers pay farmers to pollinate farmers' crops.

Question

Quizplus · Accepted Answer

Farmers paying beekeepers to pollinate their crops means that the positive externality of honey production (increased crop yield due to pollination) is being internalized by the farmer who benefits from it directly. This incentivizes beekeepers to continue their honey production as they receive compensation for their role in pollination. Tax breaks for either beekeepers or farmers do not necessarily internalize the positive externality of honey production, and beekeepers paying farmers for pollination would not properly incentivize farmers to value the importance of pollination in crop production.

The External Benefit of Honey Production Is Internalized When