Definition
- External benefit
- External benefits are the benefits of a good that go to third parties, who do not pay for them; per unit, they are the gap between MSB and MPB.
Example
Can you think of an example of external benefit?
A beekeeper's bees pollinate the apple trees in the orchard next door, so the orchard grows more fruit. The orchard owner pays the beekeeper nothing for it, so the honey price never counts it.
Test yourself
Can you name the three kinds of benefit on an externality diagram?