Which of the following is the clearest example of a positive externality?

• A. A consumer purchases a product for personal use.
• B. A factory emits pollution that harms the health of nearby residents.
• C. A company restricts access to a public park for a private event.
• D. A homeowner plants a garden that beautifies the neighborhood and increases nearby property values.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of a positive externality. A positive externality occurs when an economic activity confers benefits on third parties who are not directly involved in the transaction or decision.
2. Step 2: Analyze each option to identify whether it creates benefits or costs for third parties outside the direct transaction.
3. Step 3: Recognize that a consumer purchasing a product for personal use primarily benefits themselves, with no clear external benefit to others, so it is not a positive externality.
4. Step 4: Identify that a factory emitting pollution imposes costs on nearby residents, which is an example of a negative externality, not a positive one.
5. Step 5: Note that a homeowner planting a garden that beautifies the neighborhood and increases nearby property values creates benefits for neighbors and the community, which is a classic example of a positive externality.