POSITIVE EXTNALITIES

KEY POINTS

• A positive externality is when someone receives benefits from the activity that generated the benefit, even though they were not involved in the activity
• Positive externalities are failures because they do not consider the costs and benefits that are not reflected in market prices

POSITIVE EXTERNALITY EXAMPLES

• A town gains an airport; houses near the landing strip drop in value
• Because of the increased tourism, a restaurant expands or hires more employees
• Hotels have increased profit
• Education; increase industry, more economic development, higher standards of living

FIXING POSITIVE EXTERNALITIES

• In some cases, government subsidies can help alleviate the problem