A firm pays a contractor to restore a stretch of canal beside its offices. After the work is finished, shops along the towpath gain extra trade from walkers and boat visitors.
Why is the shops' extra trade a positive externality?
The shops' gain makes the social benefit of the work less than the private benefit
The shops gain from a deal in which they neither bought nor sold anything
The shops' gain is already covered by the price the firm paid the contractor
The shops' gain is counted as part of the firm's private benefit from the work
127 exam-style questions on OCR GCSE Economics 3.8 Limitations of markets, covering 3.8.1 Positive and negative externalities, 3.8.2 Policies to correct externalities, 3.8.3 Impact of externality policies, and 3.8.4 Costs and benefits of externality policies. Each one has a worked solution and a mark scheme showing where the marks go.