Positive Externality
A positive externality occurs when production or consumption provides uncompensated benefits to third parties. The social benefit exceeds the private benefit because external benefits are not captured by the person creating them. This causes underproduction from society's perspective.
Real World
During the COVID-19 pandemic, each person vaccinated not only protected themselves but reduced transmission to vulnerable neighbours, creating external benefits that justified the UK government funding free jabs for all adults.
Exam Focus
On diagrams, draw MSB above MPB and shade the welfare loss triangle; always state that the free market underproduces relative to the social optimum.
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