Whenever there are supply-side market failures in the form of costs that suppliers do not have to shoulder, then there will be overproduction of the output.

Question

Quizplus · Accepted Answer

When suppliers do not have to bear the full costs of producing the output, they tend to overproduce as the marginal social cost (MSC) exceeds the marginal private cost (MPC). This results in a negative externality and inefficient allocation of resources. Hence, there will be an overproduction of the output.

Whenever There Are Supply-Side Market Failures in the Form of Costs