Which of the following activities results in a positive externality?

• A. A company dumps waste into a river
• B. A factory emits pollution that affects nearby residents
• C. A homeowner plants trees that improve air quality for the neighborhood
• D. A person smokes in a public park

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of an externality. An externality occurs when a person's or firm's actions affect the well-being of a bystander and this effect is not reflected in market prices.
2. Step 2: Differentiate between positive and negative externalities. A positive externality provides a benefit to others, while a negative externality imposes a cost on others.
3. Step 3: Analyze each activity to determine if it creates a positive or negative externality. For example, dumping waste or emitting pollution typically harms others, indicating negative externalities.
4. Step 4: Identify the activity that benefits others without compensation. Planting trees that improve air quality benefits the neighborhood, which is a positive externality.
5. Step 5: Conclude that the activity resulting in a positive externality is the homeowner planting trees that improve air quality for the neighborhood.