How does a positive externality impact market efficiency, similar to what policy or intervention?
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Answer: B. public good
Explanation
Public goods share characteristics of non-excludability and positive externality spillovers. Both market phenomena suffer from underprovision due to free-riding consumer behavior. Private markets fail to produce socially optimal quantities without collective intervention. Positive externalities occur when consumption benefits third parties not paying. Public goods are non-rivalrous and non-excludable in public finance theory. Paul Samuelson formally defined the economic properties of modern public goods.
Education generates positive externalities benefiting society beyond the individual student. National defense represents a classic public good funded through taxation. Governments subsidize positive externality activities to achieve efficient market outcomes. Rival goods involve consumption competition, differing from positive externality frameworks. Private goods lack the external spillover effects characteristic of positive externalities. Common resources face overuse tragedies, contrasting with positive externality underproduction.
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