If, while producing goods and services, a factory is producing pollution and not incurring the cost of this pollution, then a(n) _____ exists.

Question

A. Government failure
B. Market failure
C. Acceptable outcome
D. None of the above

Answer 1

B. Market failure

Market failure occurs when the free market fails to allocate resources efficiently, leading to negative externalities such as pollution. In this case, the factory produces pollution without bearing the costs, which results in a misallocation of resources and harm to society and the environment.