Which of the following is an economic effect of adding healthier options to a school lunch program?

• A. It always leads to a decrease in overall food expenditures for the school.
• B. It eliminates all social costs associated with school lunches.
• C. It can generate positive externalities by improving student health and reducing future healthcare costs.
• D. It causes a negative externality by increasing the incidence of diet-related illnesses.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of externalities in microeconomics. Externalities occur when a decision causes costs or benefits to third parties who are not directly involved in the transaction.
2. Step 2: Identify the type of externality related to adding healthier options to a school lunch program. Since healthier options can improve student health, this can lead to benefits beyond just the students, such as reduced future healthcare costs for society.
3. Step 3: Recognize that positive externalities occur when an action results in benefits to others, while negative externalities impose costs on others. Adding healthier options is likely to create positive externalities rather than negative ones.
4. Step 4: Evaluate the given answer choices by matching them with the concept of externalities. The correct choice should reflect the generation of positive externalities through improved health outcomes and reduced social costs.
5. Step 5: Conclude that the economic effect of adding healthier options is the generation of positive externalities, as it benefits not only the students but also society by potentially lowering future healthcare expenses.