Which of the following is an example of a positive externality?
A) A person paints her house, which increases the value of her neighbor's house.
B) A firm pays higher prices for resources, which increases its explicit costs of production.
C) A firm dumps toxic waste in a river, which causes a community to raise taxes to clean the water.
D) None of the above.

Question

Quizplus · Accepted Answer

A positive externality occurs when a third party benefits from an action that they were not involved in. In this case, painting a house and thereby increasing the neighbor's property value is a positive externality because the neighbor benefits from the improved appearance and potential market value increase of their property without having to do anything.

Which of the Following Is an Example of a Positive