The figure above contains:

• A. A positive externality
• B. A negative externality
• C. Both positive and negative externalities
• D. No externalities

Answer: (A)

Verified step by step guidance

1. Identify the curves in the graph: The graph shows two supply curves (S and SD) and two demand curves (PD and the implicit demand curve).
2. Understand the concept of externalities: Externalities occur when a third party is affected by the production or consumption of a good, either positively or negatively.
3. Analyze the supply curves: The curve labeled 'S' represents the private supply curve, while 'SD' represents the social supply curve, which includes external costs or benefits.
4. Determine the type of externality: If the social supply curve (SD) is to the right of the private supply curve (S), it indicates a positive externality, as the social cost is lower than the private cost.
5. Conclude based on the graph: Since the social supply curve (SD) is to the right of the private supply curve (S), the graph represents a positive externality.