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

• A. Vaccination reduces disease risk for others.
• B. Investing in education benefits only the student.
• C. A private market underprovides a public good.
• D. A tax on carbon reduces emissions.

Answer: (A)

Positive externalities happen when a person’s action creates benefits for others who aren’t paying for them. Vaccination is a classic example because when you get vaccinated, you’re less likely to spread disease to people around you. Even those who aren’t vaccinated or can’t be vaccinated enjoy lower risk and benefit from herd immunity, at no direct cost to them. That spillover of benefits to others is what makes it a positive externality.

The other statements don’t fit this idea. If education only benefits the student, there aren’t explicit benefits to third parties in the scenario, so it’s not showing an external benefit to others. A private market underprovides a public good due to non-excludability and non-rivalry, which is a market failure issue rather than an external benefit created by an individual action. A tax on carbon is a policy tool to reduce a negative externality, not an example of a positive externality generated by a private action.