Question

Distinguish between positive externalities and negative externalities.

Differentiate between positive externalities and negative externalities.

Answer 1

Positive externalities refer to benefits caused by one entity to another, without being paid for it. Whereas Negative externalities refer to the harms caused by one entity to another without being penalized for it.

Answer 2

Unintended consequences of economic activity that affect persons not directly involved in the transaction are known as externalities. They may be positive (helpful) or negative (harmful).

The difference between Positive and Negative Externalities is as follows:

Aspect	Positive Externality	Negative Externality
Impact	Benefits society	Harms society
Market Failure	Underproduction (too little)	Overproduction (too much)
Example	Beekeeping aiding crop yields	Oil spills damaging ecosystems
Policy Fix	Subsidies, public goods	Taxes, regulations