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

Question

Quizplus · Accepted Answer

If suppliers do not face all the costs associated with producing their output, such as pollution or negative health effects, then they will not take these costs into account when setting prices and determining the quantity of output to supply. As a result, they will overproduce the output which will create a market failure. This is an example of a supply-side market failure.

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