In microeconomics, demand side market failures occur under which of the following conditions?

Introduction / Context:
In microeconomics, the concept of market failure explains situations where markets do not allocate resources efficiently. Demand side and supply side failures describe different reasons why this can happen. Demand side market failures focus on problems in how demand is represented, especially when the demand curve underrepresents consumers’ true willingness to pay. Understanding this concept is important for analysing public goods, externalities, and the role of government intervention.

Given Data / Assumptions:

• Demand curves are supposed to reflect the marginal benefit or willingness to pay of consumers.
• Supply curves are supposed to reflect the marginal cost of producing the good or service.
• Market efficiency requires that marginal benefit equals marginal cost at equilibrium.
• The question asks specifically about demand side market failures, not supply side or tax effects.

Concept / Approach:
Demand side market failures occur when the demand curve does not capture all the benefits received by consumers from consuming a good or service. This often happens with public goods or goods that create positive externalities, where individuals understate their true valuation or can benefit without paying. As a result, the market demand curve is too low, and the product is underproduced relative to the socially efficient level. By contrast, supply side failures involve costs not reflected in the supply curve, such as pollution externalities.

Step-by-Step Solution:
Step 1: Recall that demand side market failure is tied to demand curves not fully representing consumers’ marginal benefits. Step 2: Examine option a, which refers to supply curves and production costs; this describes a supply side failure, not a demand side one. Step 3: Examine option b, which correctly states that the demand curve does not reflect consumers’ full willingness to pay for goods or services. Step 4: Examine option c, which concerns government taxation; while taxes can influence markets, the presence of a tax alone does not define a demand side failure. Step 5: Examine option d, which is simply the case of zero demand; if no one demands a good and it is not produced, there is no market failure because resources are not being misallocated.

Verification / Alternative check:
Consider examples like national defence or a public park. Individuals may not reveal their true willingness to pay because they can enjoy the benefits without directly paying for them (the free rider problem). The measured demand curve appears too low, so the market underprovides these goods relative to the socially optimal level. This underrepresentation of benefits is the essence of demand side market failure, matching the description in the correct option. In contrast, pollution and environmental damage are typical examples of supply side failures, where costs are understated on the supply curve.

Why Other Options Are Wrong:
Option a refers to supply curves not reflecting full production cost, which is a supply side market failure. Option c focuses on government taxation, which may be a response to or cause of distortions but is not the definition of demand side failure. Option d simply describes a good with no demand, which does not by itself indicate a misallocation of resources or failure of the market mechanism.

Common Pitfalls:
Students often confuse demand side and supply side failures, especially when both benefits and costs are mismeasured in real situations. Another common error is to treat any government intervention, such as taxes, as proof of market failure, without distinguishing between causes and policy responses. To avoid confusion, always ask whether the problem lies in under or over representation of benefits (demand side) or costs (supply side) on the respective curves.

Final Answer:
Demand side market failures occur when demand curves do not reflect consumers’ full willingness to pay for goods or services.