When do demand-side market failures occur?

• A. When the supply curve does not reflect the marginal private cost of production
• B. When it is not possible for the market to accurately measure and charge consumers for the full benefits they receive from a product
• C. When producers are unable to account for the full costs of production in the market price
• D. When government intervention leads to inefficient allocation of resources

Answer: (B)

Verified step by step guidance

1. Understand that demand-side market failures occur when the demand curve does not reflect the true marginal social benefit of a good or service.
2. Recognize that this situation arises when consumers cannot be accurately charged for the full benefits they receive, leading to underconsumption or overconsumption relative to the socially optimal level.
3. Note that this differs from supply-side failures, which involve the supply curve not reflecting the marginal social cost of production.
4. Identify examples such as public goods or external benefits where the market fails to capture the full value consumers derive, causing demand-side market failure.
5. Conclude that demand-side market failures occur specifically when the market cannot measure and charge consumers for the full benefits they receive from a product.