An externality is said to occur when the action of one entity made an impact on other entity. These externalities can be positive as well as negative. A positive externality occurs when the action of one person positively affects the other. For instance, plantation by a person provides fresh air to others.
Also, it contributes to the environment along with increasing the welfare of people. Thus, plantation by a person affects the life of the people living on the surrounding areas, it enhances the overall welfare of the society and creates positive externality.