AP MicroeconomicsMarket Failure & Government
Positive Externality
A positive externality is a benefit enjoyed by a third party not involved in a transaction, such as vaccination or education.
Because buyers ignore these external benefits, the market underproduces relative to the socially optimal quantity. The marginal social benefit exceeds the marginal private benefit. Governments correct it with subsidies or public provision.
Formula / Example
Underproduction: marginal social benefit > marginal private benefit, so Q_market < Q_social.
Interactive graph
Externalities →
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Study module
Public Goods & Externalities →
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