Demand-side market failure January 1, 2023 by admin arises in situations in which a firm does not have to pay the full cost of producing its output. arises when it is impossible to charge consumers what they are willing to pay for a product. exists in equilibrium with supply-side market failure. happens only when the quantity of a good demanded is less than that which is supplied. See Answer arises when it is impossible to charge consumers what they are willing to pay for a product.