The provision of a public good generates a:

• A. private benefit only to those who pay for the good
• B. market equilibrium where marginal cost equals marginal benefit for each individual
• C. positive externality because individuals benefit without directly paying for the good
• D. negative externality because the good is rival in consumption

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definition of a public good. A public good is characterized by being non-rivalrous (one person's consumption does not reduce availability to others) and non-excludable (people cannot be prevented from using it).
2. Step 2: Recognize that because of non-excludability, individuals can benefit from the public good without directly paying for it, which leads to external effects on others.
3. Step 3: Define externalities. A positive externality occurs when a good or service provides benefits to others who are not directly involved in the transaction, while a negative externality imposes costs on others.
4. Step 4: Analyze the options given: since individuals benefit without paying, this is a positive externality, not a private benefit only to payers, nor a market equilibrium condition, nor a negative externality (which relates to rivalrous goods).
5. Step 5: Conclude that the provision of a public good generates a positive externality because it creates benefits for individuals who do not pay for it.