Give an example of a positive externality and a policy to encourage it.

• A. Vaccination; subsidies or public provision to raise uptake.
• B. Pollution; taxes on emissions.
• C. Traffic congestion; building more roads.
• D. Smoking; bans in public places.

Answer: (A)

A positive externality occurs when the action of an individual creates benefits for others who don’t pay for them. Vaccination is a clear example because when you get vaccinated, you reduce the spread of disease, protecting people around you who may be unvaccinated or vulnerable. Those spillover benefits mean society gains more from vaccination than the person who gets vaccinated captures. To encourage this, policies like subsidies to lower out-of-pocket costs or public provision of vaccines raise uptake and move outcomes closer to the social optimum.

The other options don’t fit as a positive externality example. Pollution produces negative externalities; taxes on emissions are designed to reduce that harm, not to promote a positive spillover. Building more roads can change traffic patterns in ways that may not create a clear positive externality and can even worsen congestion overall. Smoking bans aim to reduce health harms from secondhand smoke, which is addressing a negative externality rather than promoting a beneficial spillover.