Positive externality
Definition. A positive externality is a beneficial spillover effect of production or consumption that accrues to third parties who are not part of the transaction, and for which no payment is made. Because the private decision maker ignores these external benefits, the marginal social benefit exceeds the marginal private benefit.
Positive externalities lead to underconsumption or underproduction relative to the social optimum, creating a welfare loss. Governments may correct this through subsidies, public provision, or education.
This term belongs to Externalities in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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