Denise is thinking about setting up a butterfly garden in her backyard. She estimates that it will cost her $2,000 to purchase and install special plants and an irrigation system to attract butterflies. The benefit she expects to receive is $1,800. In addition, neighbor Billy will receive a benefit of $150 and neighbor Sammy will receive a benefit of $100. From this, we can conclude that:

Question

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If Billy and Sammy are willing to contribute the amounts they value the butterfly garden ($150 and $100 respectively), Denise will be able to cover the total cost of $2,000 and receive a benefit of $1,800. This is a win-win situation for all parties involved as Denise will receive her desired benefit and the neighbors will benefit as well. This is an example of a positive externality where the benefits spill over to parties who do not directly pay for it.

Denise Is Thinking About Setting Up a Butterfly Garden in Her