Question

Differentiate between positive and negative externalities.

Hint:

Positive externalities create benefits for society, while negative externalities impose costs; governments use subsidies and taxes to address them.

Answer 1

\[ \begin{array}{|l|l|} \hline \textbf{Positive Externalities} & \textbf{Negative Externalities} \\ \hline \text{Benefits third parties without direct involvement.} & \text{Imposes costs on third parties without compensation.} \\ \hline \text{Leads to under-consumption in a free market.} & \text{Leads to over-production or consumption in a free market.} \\ \hline \text{Example: Education, Vaccination.} & \text{Example: Pollution, Traffic Congestion.} \\ \hline \end{array} \]