What is a positive externality example given?

Prepare for the SASB Fundamentals of Sustainability Accounting Level II Test. Study with multiple choice questions, gaining hints and explanations. Enhance your sustainability reporting skills and ace your exam!

Positive externalities happen when the actions of one party create benefits for others that the market doesn’t pay for. Vaccines produced by pharma companies and supported by government subsidies to boost uptake are a classic example: when more people get vaccinated, not only the individuals are protected, but the whole community benefits through herd immunity, fewer outbreaks, lower healthcare costs, and greater overall productivity. These societal benefits aren’t fully captured in the price of the vaccine, so government subsidies help align private incentives with social welfare. That combination—a private action producing broader public benefits and policy to encourage more of it—is what makes this an example of a positive externality.

Increased profits are mainly private gains for the company, not spillover benefits to others. Pollution and deforestation are typically negative externalities, imposing costs on others and the environment.