In which situation may actual welfare exceed recorded market value because of a positive externality?
Answer and explanation
Correct answer: Vaccination reducing infection in the community
A positive externality exists when an activity creates benefits for third parties that are not fully reflected in the buyer's private payment. Vaccination protects the recipient and lowers the probability of infection for other community members, so its social benefit exceeds its private market valuation. C is correct. Smoke and deforestation create negative externalities, while crime-related security spending does not represent this positive spillover.
Frequently asked questions
What is the correct answer to this question?
Vaccination reducing infection in the community
Why is this the correct answer?
A positive externality exists when an activity creates benefits for third parties that are not fully reflected in the buyer's private payment. Vaccination protects the recipient and lowers the probability of infection for other community members, so its social benefit exceeds its private market valuation. C is correct. Smoke and deforestation create negative externalities, while crime-related security spending does not represent this positive spillover.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
