Which of the following is an example of a positive externality (additional social benefit)?

• A. A driver causes traffic congestion during rush hour.
• B. A company monopolizes a market and raises prices.
• C. A factory emits pollution that harms nearby residents.
• D. A homeowner plants a garden that beautifies the neighborhood.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of a positive externality. A positive externality occurs when an activity or decision by an individual or firm results in additional benefits to third parties or society that are not reflected in market prices.
2. Step 2: Review each option and identify whether it creates additional social benefits (positive externality) or social costs (negative externality).
3. Step 3: Analyze the option 'A driver causes traffic congestion during rush hour.' This creates a cost for others (delays), so it is a negative externality, not positive.
4. Step 4: Analyze the option 'A company monopolizes a market and raises prices.' This typically reduces consumer surplus and does not create additional social benefits, so it is not a positive externality.
5. Step 5: Analyze the option 'A factory emits pollution that harms nearby residents.' Pollution imposes costs on others, so it is a negative externality, not positive. The option 'A homeowner plants a garden that beautifies the neighborhood' creates additional social benefits by improving the environment and aesthetics for others, which is a positive externality.