Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A homeowner plants a garden that beautifies the neighborhood, increasing property values for surrounding homes.
B
A factory emits pollution affecting the health of nearby residents.
C
A company raises wages, leading to increased productivity but decreased profits.
D
A restaurant provides free samples, driving up sales but not accounting for the cost of the samples.
Understanding the Answer
Let's break down why this is correct
Answer
A positive externality in consumption occurs when a person's consumption of a good or service benefits others who are not directly involved in the transaction. For example, consider a situation where a family decides to plant a beautiful garden in their front yard. While the family enjoys the flowers and plants, neighbors and passersby also benefit from the sight of the colorful garden, leading to a more pleasant neighborhood. This situation illustrates market failure because the family may not receive full compensation or recognition for the positive impact their garden has on the community. In welfare economics, this highlights the importance of encouraging such beneficial activities to enhance overall social well-being.
Detailed Explanation
When a homeowner plants a garden, it makes the neighborhood look nicer. Other options are incorrect because This example shows a negative effect; Higher wages can help workers, but if profits drop, it doesn't show a benefit to others.
Key Concepts
market failure
welfare economics
public goods
Topic
Positive Externalities in Consumption
Difficulty
hard level question
Cognitive Level
understand
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