Which scenario is an example of a positive externality?

A positive externality occurs when a decision or activity leads to beneficial effects on third parties who are not directly involved in the transaction. In this context, the consumption of a drug to cure a communicable disease represents a positive externality because when an individual takes a medication that effectively treats or cures a contagious illness, it not only benefits them by improving their health but also has broader societal benefits. These include reducing the spread of the disease, improving public health, and potentially lowering healthcare costs for the community.

In contrast, the other scenarios do not illustrate positive externalities. Deforestation resulting in species extinction has negative repercussions for biodiversity and is a clear example of a negative externality. The sudden increase in the price of oil affects market dynamics and consumer behavior but does not provide widespread positive benefits; rather, it often leads to higher costs for consumers. The sudden increase in demand for diamonds does not lead to positive spillover benefits to third parties and is primarily an effect of market demand, which can have both positive and negative implications depending on the perspective taken.