When production of a good creates an external benefit:

Question

Quizplus · Accepted Answer

When production of a good creates an external benefit, it is considered a positive externality because there is a spillover effect that benefits individuals beyond the producer and consumer. For example, when a company invests in research and development, it creates new technologies and knowledge that can benefit society as a whole. However, since the producer does not take into account these external benefits, they may not produce the optimal level of the good.

When Production of a Good Creates an External Benefit