Question

A positive externality or spillover benefit (additional social benefit) occurs when

a.product differentiation increases the variety of products available to consumers. firms earn positive economic profits.
b.the benefits associated with a product exceed those accruing to people who consume it.
c.a firm does not bear all of the costs of producing a good or service.

Answer 1

A positive externality is a beneficial effect of a transaction experienced by third parties not involved in the exchange, like a community enjoying a neighbor's garden. This causes markets to underproduce such goods, as producers are unaware of the uncharged demand.

Step-by-step explanation:

A positive externality or spillover benefit occurs when the benefits associated with a product exceed those accruing to the people who consume it. In this context, an externality is an effect of a purchase or sale that affects third parties who are not directly involved in the transaction.

When discussing positive externalities, they refer to beneficial effects experienced by third parties, such as a community benefitting from a neighbor's well-maintained garden which they did not pay for. Markets may underproduce goods that generate positive externalities because the suppliers are not paid for these external benefits, failing to recognize the additional demand from those who derive benefits without any cost.