What is an example of a positive externality in production?

A positive externality in production occurs when the production of a good or service has beneficial effects on third parties who are not directly involved in the transaction. When an option describes the production of a good that benefits the surrounding community, it reflects this concept perfectly. For example, if a company builds a factory that not only produces goods but also provides jobs and stimulates economic activity for local businesses, this creates a ripple effect that enhances the welfare of the community.

On the other hand, the other options illustrate negative or neutral effects. For instance, the production of a good that is unwanted by consumers doesn’t provide any beneficial external effects and rather suggests inefficiency. The production that leads to unemployment in the region represents a negative consequence, as it harms the local economy. Similarly, the production associated with increased pollution levels indicates a detrimental impact on the environment and public health, which is also a negative externality. Thus, the choice that highlights community benefits is the quintessential example of a positive externality in production.