Question

What are externalities? Give an example of a positive externality and its impact on welfare of the people.

Answer 1

An externality is said to occur when the actions of one entity bears an impact on other entities. These externalities can be positive as well as negative. A positive exeternality is when the action of one person positively affects the others. For instance, plantation by a person fresh air to the neighbours.
Also it contributes to the environment and , at the same time, increases the welfare of the neighbours.
Thus plantation by a person affects the life of the people living in the surrounding areas;; it enhances the overall welfare of the society and positive exeternality