Alice keeps a bee farm next to an apple orchard. She chooses the optimal number of hives by selecting the honey output level that maximizes her profit. Alice's bees help to pollinate the blossoms in the apple orchard next to her, increasing the fruit yield. Thus

Question

Quizplus · Accepted Answer

Alice's decision on the number of hives is based on her private benefits (profit from selling honey) and does not account for the external benefit her bees provide to the apple orchard through increased pollination and fruit yield. This external benefit means the social value of honey production is higher than the private value, leading to underproduction of honey from a societal perspective.

Alice Keeps a Bee Farm Next to an Apple Orchard