Positive externality is a benefit that arises from production or consumption that availed by someone who is not a producer or consumer. Hence, the benefits will go to the third person without paying for it.
Earning income by performing a service will not be benefitted to a third person who is not involved in the activity. Hence, there will be no externality from this service.
Neighbors have to breathe smoke if a person mows lawn as the lawnmower spews out smoke. This will cause the neighbors to feel uncomfortable. Hence, the act of cleaning mob will give negative externality.
A person cuts his/her lawn and makes it more attractive to the neighbors staying around. Hence, it will give positive externality.
Neighbors of Mrs. H are willing to pay her if she promises to get her loan cut regularly and maintain clean. Since the neighbors are paying for this service, it does not give positive externality.
Hence, the option 'c' is incorrect.
Alcohol presents a negative externality. Because it leads to more motor vehicle accidents and, thus, imposes costs on people who do not drink and drive. The figure below illustrates alcohol market and social optimum.
In the presence of a negative externality, such as accidents, the social cost of the alcohol exceeds the private cost. The optimal quantity, Q optimum , is therefore smaller than the equilibrium quantity Q market.
The deadweight loss is illustrated by the triangle area "aEb" in the figure below. E is the market equilibrium point. "a" is the social cost corresponding to the excess consumption of Q market. This cost is higher than the social value, described by demand curve. The area "aEb" describes the total amount of social cost exceeding the social value. Only at Q optimum can we minimize the difference between social cost and social benefit. The distance between Q optimum and Q market is over-consumption.
The graph is as follows:
Social cost curve:
Social cost refers to the cost of producing a commodity that is not only bear by the producer but also by the entire society. The social cost is the sum of private cost and external cost.
If a negative externality is the result of producing a good, then the social-cost curve will be above the supply curve. As a result, the socially optimal quantity will be less than the equilibrium quantity.
Hence, the option 'b' is correct.