positive externalities

• What is the definition of a positive externality in consumption?

  Third-party benefits
• Vaccinations are an example of a good that generates positive externalities in consumption
• Getting vaccinated reduces the chance of others catching the disease.
• How does education generate positive externalities?

  Higher taxes paid
• Steps to illustrate positive externalities in consumption using a diagram

  1️⃣ Draw the original demand and supply curves

  2️⃣ Identify the private equilibrium

  3️⃣ Shift the demand curve to the right

  4️⃣ Label the social equilibrium

  5️⃣ Shade the welfare loss area
• The social optimum in positive externalities in consumption is located at the intersection of the social benefit curve and the supply
• The welfare loss in positive externalities in consumption points towards the social optimum.
• Why do private individuals underconsume goods with positive externalities?

  They ignore third-party benefits
• Firm-provided worker training is an example of a positive externality in production
• One firm's research and innovation can lower costs for other firms.
• Which curve shifts in a diagram illustrating positive externalities in production?

  The cost curve
• The market equilibrium in positive externalities in production is located at the intersection of the private cost curve and the social benefit
• The welfare loss in positive externalities in production arises because firms produce less than the socially optimal level.
• Why do firms underproduce goods with positive externalities in production?

  They only consider private costs
• Match the concept with its description:

  Positive externality in consumption ↔️ Benefits to third parties from consumer actions

  Positive externality in production ↔️ Benefits to third parties from firm actions

  Social optimum ↔️ Level of output considering all externalities

  Welfare loss ↔️ Area showing potential unrealized benefits