A Level Economics AQA Practice Exam

What are positive externalities?

1. Costs imposed on society by external factors

2. Benefits shared by consumers and society from a public good

3. Negative impacts of consumption on third parties

4. Goods that are under-consumed

The correct answer is: Benefits shared by consumers and society from a public good

Positive externalities occur when the actions of individuals or firms have beneficial effects on third parties who are not directly involved in the transaction. In the context of public goods, these benefits spill over to consumers and society at large. For example, when someone gets vaccinated, it not only protects them but also contributes to herd immunity, thereby protecting others in the community. This understanding highlights the significance of positive externalities in promoting social welfare, as they indicate that the full benefits of certain actions or goods are not captured by the market. In contrast, other choices focus on aspects such as costs or negative impacts, which are not aligned with the definition of positive externalities.