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What is a positive externality?

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Quick Answer

In economics, a positive externality is when an individual or firm makes a decision without receiving the full benefit of that decision. Instead, the benefit to society is greater than the benefit to the individual or firm. As a result, less is produced and consumed than what's socially optimal.

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Full Answer

Immunizations are one example of a positive externality. They prevent an individual from becoming sick, and in turn, prevent that individual from potentially spreading that sickness to others; thus, helping society more than the individual. Another example is a person keeping their yard well maintained, as it not only increases the property value of that person's home, but the surrounding homes as well.

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