In 1973,economist Steven N.S.Cheung wrote an article demonstrating that private bargaining between beekeepers and agricultural producers achieved the efficient outcome in the market for pollination services in Washington state ("The Fable of the Bees: An Economic Investigation." Journal of Law and Economics 16,no.1 (1973): 11-33).Strong colonies of honeybees are necessary for pollinating some crops,and they also increase yields.Colonies that are co-located with good pollen sources produce more honey.Suppose the following facts describe the market for pollination services for seed alfalfa in Washington state: seed alfalfa growers harvest an additional $4,000 worth of alfalfa seed when honeybees are co-located with their crop; beekeepers realize an additional $1,500 worth of honey when their bee colonies are co-located with alfalfa; and the cost of moving to another alfalfa grower's field is $500.What amount of payment from the alfalfa grower to the beekeeper will result in a market for pollination services that achieves the efficient outcome? Explain your answer.
A) $0
B) $500
C) $2,000
D) $5,000

Question

Quizplus · Accepted Answer

An efficient outcome in the market for pollination services occurs when the total benefits of co-locating honeybees with seed alfalfa crops are greater than the costs of doing so. In this case, the total benefits are $4,000 for the seed alfalfa growers and $1,500 for the beekeepers, yielding a total benefit of $5,500. The cost of moving the bees to another alfalfa grower's field is $500. Thus, an efficient outcome is achieved when the alfalfa grower pays the beekeeper $2,000 ($5,500 total benefits - $500 cost of moving = $2,000 payment from alfalfa grower to beekeeper). Therefore, the answer is C) $2,000.