Question

Use an example of a positive externality arising due to COVID 19 to explain what is meant by a positive externality and how it affects the efficiency of markets.

Answer 1

A positive externality exists if the production and consumption of goods and services benefits a third party not directly involved in the market transaction. For example- when we consume education it has the private benefit. But it also benefit the society.

Likewise in the current situation of covid-19(started in late December 2019 in wuhan,hubei china) the pandemic also showed the positive externality in the economy.

Compared to the same period as last year,the lockdown is estimated to have reduced transportation by 50%. People ate confined to their rooms where they can only make access to basic goods and services which helped a lot in increasing small business. More over the pandemic also gave opportunity to many online services like naukri.com,(for online job seeking)zoom application,google meet for online meeting and many more.

Also we can say that mask making organization or companies sees the best opportunity in this situation.

However externalities leads to inefficiency in the market because a product or a service's price equilibrium does not accurately reflect the true costs and benefits of that product or service.