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HomeHomework HelpeconomicsPositive Externality Example

Positive Externality Example

A positive externality occurs when a third party benefits from an economic transaction they are not directly involved in. This often leads to benefits that are not reflected in the market price.

beginner
1 hour
Economics
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Overview

Positive externalities are beneficial effects experienced by third parties who are not directly involved in an economic transaction. These externalities can lead to significant societal benefits, such as improved education, public health, and environmental conservation. Understanding positive extern...

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Key Terms

Externality
A consequence of an economic activity that affects other parties without being reflected in the cost.

Example: Pollution from a factory affects nearby residents.

Third Party
An individual or group not directly involved in a transaction but affected by it.

Example: Neighbors benefiting from a well-kept garden.

Market Failure
A situation where the allocation of goods and services is not efficient.

Example: When positive externalities are not accounted for in market prices.

Social Benefit
The total benefit to society from an economic activity, including private and external benefits.

Example: Increased education leading to a more informed public.

Subsidy
Financial assistance provided by the government to encourage certain activities.

Example: Government subsidies for renewable energy projects.

Public Health
The health of the population as a whole, often improved through government initiatives.

Example: Vaccination programs that benefit the entire community.

Related Topics

Negative Externality
A negative externality occurs when a third party suffers from an economic transaction.
beginner
Public Goods
Goods that are non-excludable and non-rivalrous, benefiting everyone.
intermediate
Market Structures
Different types of market systems and their characteristics.
intermediate
Cost-Benefit Analysis
A method to evaluate the total costs and benefits of a project or decision.
advanced

Key Concepts

externalitythird partymarket failuresocial benefit