Which of the following is an example of an external benefit?
A) More people start to ride the bus because they become more public‐spirited and, as a result, air pollution is reduced.
B) Firms are able to reduce their costs of production by using a more efficient technology.
C) The federal government spends a million dollars on improving national parks.
D) A firm has just gotten permission to open a landfill on property that is adjacent to your home.

Question

Quizplus · Accepted Answer

External benefits, also known as positive externalities, occur when the actions of individuals or firms have a beneficial effect on others who are not directly involved in the transaction. In choice A, when more people start to ride the bus, it reduces air pollution, which is a benefit to the general public, not just to the individuals who decide to ride the bus. This is a classic example of an external benefit.

Which of the Following Is an Example of an External