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

(B) False

The correct answer is True.

Explanation:

Externalities are caused when the production or consumption of a good or service has a cascading effect that is not purely reflected in its price and therefore there is no appropriate compensation to be paid for it. If the price does not include the true costs of the good or service there will be a market failure. Importantly, externalities can be positive or negative. To prevent refusals, governments must add certain taxes to assets to cover their social cost.