Multiple Choice
Which of the following statements about the bullwhip effect in supply chains is correct?
7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
A honey farm's bees pollinate neighboring apple orchards without compensation. What type of market failure is present?
A
Positive production externality (external benefit)
B
Monopoly market power
C
Public good problem
D
Negative production externality (external cost)
Verified step by step guidance1
Step 1: Understand the concept of externalities in microeconomics. Externalities occur when a third party is affected by the production or consumption of a good or service without compensation.
Step 2: Identify whether the externality is positive or negative. A positive externality provides a benefit to others, while a negative externality imposes a cost.
Step 3: Analyze the scenario: bees from a honey farm pollinate neighboring apple orchards without compensation. This means the apple orchards receive a benefit from the bees' activity without paying for it.
Step 4: Recognize that this situation is a positive production externality because the production of honey (and the bees' activity) generates an external benefit to the apple orchards.
Step 5: Conclude that the market failure present is a positive production externality (external benefit), as the benefits to the apple orchards are not reflected in the market transactions.
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