“Shifting to electrical vehicles will reduce emissions of green house gases” is an example of
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Positive consumption externalities
The act here is consumption — a household buying and driving an electric vehicle. The cleaner air and lower greenhouse gas load that follow are enjoyed by everyone, not just the buyer, and the buyer is not paid for that spillover benefit. A benefit conferred on third parties by an act of consumption is a positive consumption externality.
A production externality would arise from a firm’s manufacturing activity, and a negative externality would impose a cost on others — as burning petrol and diesel does.