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Positive externality, in economics, a benefit received or transferred to a party as an indirect effect of the transactions of another party A positive externality occurs when the transaction provides benefits to bystanders Positive externalities arise when one party, such as a business, makes another party better off but does not receive any compensation for doing so.

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There are two main types of externalities Externalities occur when a decision or a transaction between two parties also affects third parties (bystanders) For example, water pollution affects all consumers but is not caused by them

Water pollution is, therefore, a negative externality

A positive externality, on the other hand, benefits the third party. In contrast, negative externalities are the harms to those third parties. The reduction in pollution benefits everyone in the surrounding area (and globally, in the case of greenhouse gases) Cleaner air leads to better public health outcomes (fewer respiratory illnesses, lower healthcare costs) and a healthier environment.

This occurs when the consumption or production of a good causes a benefit to a third party When you consume education you get a private benefit But there are also benefits to the rest of society. Positive externality is when a third party benefits from another party deciding to consume or produce a product or service.

A positive externality, on the other hand, is when one party receives an indirect benefit as a result of actions taken by another

Externalities can stem from either the production or consumption of a good or service. In the presence of a positive externality (with a constant marginal external benefit), this curve lies above the demand curve at all quantities When we add external costs to private costs, we create a marginal social cost curve. On the other hand, positive externalities are the benefits that accrue to third parties from the production or consumption of a good, such as education or vaccination

These external benefits enhance societal welfare and can result in market underproduction.