Positive externalities

Positive Externalities

Benefits experienced by third parties as a result of production or consumption that occur outside of the market.

Example of Positive Production

Projects aimed at reducing deforestation provide social benefits beyond the immediate economic returns.

Example of Positive Consumption

Activities like pest control and gardening that offer benefits to the community and environment.

Social Benefit vs. Private Benefit

The total benefit to society is greater than the personal benefit received by the individual.

Subsidy Effect on Consumption

A subsidy reduces the marginal private cost (MPC) of consumption, potentially increasing demand towards the optimal social level.

Marginal Social Cost (MSC) vs. Marginal Private Cost (MPC)

In the presence of positive externalities, the marginal social cost of production is less than the marginal private cost of production.