Positive externalities are created when:
A)farmers spray pesticide in their fields and it washes into the local river.
B)your neighbor plants beautiful flowers in her yard and you enjoy looking at them.
C)you purchase the "Mona Lisa" and lock it in a vault.
D)other consumer reduce their demand for coffee and price thereby declines.

Question

Quizplus · Accepted Answer

Positive externalities refer to the benefits that spill over to third parties who are not involved in the initial transaction. In this case, your neighbor's decision to plant beautiful flowers in her yard creates a positive externality for you as you enjoy looking at them without any direct involvement or payment. Option A creates negative externalities as the pesticide harms the environment and people downstream who use the water. Option C does not create any externalities as the painting is not accessible to anyone, so there is no benefit spillover. Option D is incorrect as reducing demand for coffee would result in a decrease in supply and possibly an increase in price, making it a negative externality.

Positive Externalities Are Created When