When producers do not have to pay the full cost of producing a product, they tend to:
A) Over-produce the product because of a demand-side market failure
B) Under-produce the product because of a demand-side market failure
C) Under-produce the product because of a supply-side market failure
D) Over-produce the product because of a supply-side market failure

Question

Quizplus · Accepted Answer

When producers do not pay the full cost of production, it leads to a supply-side market failure, causing them to over-produce because they do not account for the external costs.

When Producers Do Not Have to Pay the Full Cost