Question

Which of the following is an example of a positive externality?

prohibit street parking in all residential neighborhoods

planting trees along a sidewalk which add beauty and creates shade

banning the sale of candy in elementary schools

forbidding the use of cell phones in public

Answer 1

When action of one individual creates loss to others but people who get loss due to that person action, does not receive any compensation from that person, then it is called negative externality

Since when action of one individual creates benefits to others but they do not pay anything for it, then it is called positive externality.

When trees are planted along a sidewalk that increases the beauty and creates shade is an example of positive externality because many people get benefitted who have not paid for it.

Hence option second is the correct answer.