Question

What are positive externalities?

1) Benefits that a decision or activity provides to others
2) Benefits that a decision or activity provides only to oneself
3) Negative effects that a decision or activity has on others
4) Negative effects that a decision or activity has only on oneself

Answer 1

Positive externalities are benefits from an activity that affect third parties who did not choose or pay for the activity, such as enjoying a neighbor's garden as a passersby or society benefiting from an individual's vaccination. Option 1 is correct.

Step-by-step explanation:

Positive externalities are benefits that a decision or activity provides to others who did not directly purchase the good or service that generated these benefits. These are often termed as external benefits or beneficial spillovers. An example of a positive externality is when your neighbor plants trees and puts up birdhouses, which you enjoy as a bird watcher even though you did not contribute to the cost or effort of these activities.

As highlighted in economic theory, positive externalities, like technology advancements or vaccinations, can lead to societal benefits that exceed the individual benefits. For instance, vaccinations not only protect the individual who gets vaccinated but also create a positive spillover effect by reducing the potential for disease transmission to others. Similarly, when homes in a neighborhood are improved, it can increase property values for the whole community.