Q+92+-+Micro

[[image:positive_externality_graph_.png]]
A positive externality is a benefit arising for third parties (non-users and non-producers) from the production and/or consumption of a good which neither the firm nor consumer has paid for. Positive externalities arise whenever the marginal social benefit (MSB) is greater than the marginal private benefit (MPB). The diagram above provides an example of a graph for a positive externality. In a market, the allocative efficiency is where the marginal social costs (MSC) are equal to the MSB. However, because at price, P0, and quantity, Q0, the MSB is greater than the MPB, there is an under-allocation of resources to the production of the good or service. Therefore, there is actually a societal waste, or a potential welfare gain. An example of a good that has a positive externality is gym memberships. This is because, the ability to train and stay in shape helps keep individuals in good health. If more people in the society are healthy, then they can work more efficiently and help produce goods and services more efficiently in the economy, thus there would be an increased benefit to society.