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

• A. Education benefits society
• B. Pollution
• C. Traffic congestion
• D. Noise from a factory

Answer: (A)

Positive externalities happen when the action of one party creates benefits for others that they don’t pay for. Education is a classic example: when people gain knowledge and skills, society as a whole benefits through a more productive workforce, higher overall incomes, and often lower crime or greater innovation, even if those social gains aren’t paid to the student or school. Because the full social benefits aren’t captured by the person paying for education, markets alone may underprovide it, which is why government sometimes supports education.

The other options illustrate negative externalities, where the activity imposes costs on others: pollution harms people and the environment, traffic congestion wastes others’ time and increases costs, and noise from a factory disturbs nearby residents.