Which of the following is NOT an example of a positive externality?

• A. An individual receives a flu vaccine, reducing the spread of illness
• B. A homeowner plants a garden that beautifies the neighborhood
• C. A person restores a historic building, increasing local property values
• D. A company pollutes a river, affecting downstream users

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of a positive externality. A positive externality occurs when an individual's or firm's actions result in benefits to others that are not reflected in market prices.
2. Step 2: Analyze each option to determine if it creates benefits for others beyond the individual or firm involved. For example, a flu vaccine reduces disease spread, benefiting others; a garden beautifies the neighborhood, improving others' enjoyment; restoring a historic building can increase property values, benefiting neighbors.
3. Step 3: Identify the option that does not create a benefit for others but instead imposes a cost. Pollution typically harms others by degrading the environment or health, which is an example of a negative externality, not a positive one.
4. Step 4: Conclude that the option involving pollution is NOT a positive externality because it imposes external costs rather than benefits.
5. Step 5: Summarize that positive externalities increase social welfare by providing unpriced benefits, whereas negative externalities reduce social welfare by imposing unpriced costs.