Which scenario is a positive externality?

• A. A firm polluting causing health costs
• B. A consumer paying for goods unnecessarily
• C. A factory reducing emissions that benefits neighbors
• D. A private good with rivalry

Answer: (C)

Positive externalities happen when someone outside the transaction receives a benefit from an activity. Here, a factory that cuts emissions creates healthier air and potentially lower healthcare costs for neighbors and the surrounding community, even though those neighbors didn’t pay for the emissions reduction. Those benefits spill over to others, which is why this is a positive externality. The other scenarios don’t fit: pollution causing health costs is a negative externality because it imposes costs on others; a consumer paying for goods unnecessarily is just a private purchase issue; a private good with rivalry describes a good where one person’s consumption reduces another’s, not an externality.