An example of a market failure due to a firm NOT fully bearing the costs of its production decision is
A) a levee.
B) pollution.
C) profit.
D) imperfect information.

Question

Quizplus · Accepted Answer

When a firm produces a product or service, it may create negative externalities like air or water pollution that harm the health and well-being of society. These external costs are usually not taken into account by the firm when making production decisions, meaning the true cost of producing the product is not reflected in the market price. This creates a market failure because the firm is not fully bearing the costs of its production decision, and society as a whole suffers as a result.

An Example of a Market Failure Due to a Firm