When a supply-side market failure occurs, the costs are greater than the benefits for the last unit(s) of output produced.

Question

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When there is a supply-side market failure, the costs of producing the last few units of output are greater than their benefits. This occurs when the market fails to allocate resources efficiently, usually due to externalities or public goods. As a result, too much or too little of the good or service is produced, leading to a welfare loss.

When a Supply-Side Market Failure Occurs, the Costs Are Greater