Let's explore the concept of externalities a bit further. An externality is when a trade affects those who are not direct participants in the market. Many people can easily understand the allocative inefficiency of a negative externality such as pollution, where the cost of pollution extends well beyond the market for the product causing pollution. A lower quantity of such a product would seem more allocatively efficient. It is sometimes more difficult to understand how a good which yields a positive externality, or extra benefit beyond what is reflected in market demand, could lead to allocative inefficiency. The inefficiency is that we likely have an underproduction of a good which produces a positive externality.
For this Discussion, research a few articles concerning the endangered situation of honey bees. Think about how the benefit of honey bees may or may not be fully reflected in actual markets and market demand. For example, do you think that the market demand for jars of honey is adequate to reflect the full benefit offered by honey bees and their pollinating capabilities? Discuss how this is likely an example of what is referred to as a positive externality.
Without any intervention, do you think the market for jars of honey alone would allocate adequate resources towards honey bee protection and cultivation? Explain. In your research, did you encounter any ways in which either through government intervention or private exchanges and activities the honey bees are receiving additional resources? Share some of the examples you found. Can you think of any other examples of goods that yield either positive or negative externalities?