In the context of externalities, which of the following best describes the difference between socially optimal output and actual output when considering positive externalities?

When we talk about externalities, we need to understand that they are effects of a decision that impact people who are not directly involved. Positive externalities happen when someone’s actions have beneficial effects on others, like a person planting a garden that makes the neighborhood prettier and increases property values. The socially optimal output is the level of production or activity that maximizes overall benefits to society, including these positive effects. However, actual output is often lower than this optimal level because individuals or companies may not take these external benefits into account when making their decisions. For example, if a company invests in a new technology that reduces pollution, the social benefits of cleaner air might not be fully recognized, leading to less investment than what would be best for the community.