If a drug that cures a communicable disease benefits those not directly involved, this is an example of what type of externality?

The scenario described illustrates a positive externality. A positive externality occurs when a third party benefits from an economic transaction or activity in which they are not directly involved. In this case, the drug that cures a communicable disease not only helps those who are sick but also benefits other individuals and society at large by reducing the spread of the disease. This leads to improved public health outcomes, lower medical costs, and less economic disruption, representing the additional positive effects that extend beyond the individuals receiving the drug.

Identifying this situation as a positive externality is crucial as it highlights the broader social benefits of certain goods or services that may not be reflected in the market price. This concept is essential in understanding public health investments and the rationale behind subsidies or support for innovations that yield societal advantages.