Question

Give an example of a market failure coming from
1. the supply side
and
2. the demand side

Answer 1

1 - A Leather factory emmiting the smoke into the atmosphere which contains black smoke spreading into low lying areas leading into breathing problem.

This is an example of negative externality whereby the producer does not have to bear the cost of pollution , and thus this creates the market failure from the supply side.

2 - The boys playing daily in Public park and breaking and damaging the flowers and disturbing the beauty of the park which was well maintained by municipality.

The use of the public good , when done free of cost by the public , leads to the market failure as it generates the free rider problem whereby people start overusing the product knowing the fact that they will not have to pay for it.