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Economics

Externalities and Pigouvian Taxes

Quick fact

When a beekeeper keeps hives to produce honey, the bees also pollinate nearby orchards. This is a positive externality, but the beekeeper might keep too few hives exactly because the pollination benefit isn't part of the honey price.

Why this is interesting

Imagine someone else’s factory is polluting the air, but you pay the cost in health and cleaning bills. Why does the market let this happen?