If the production of copper leads to pollution that affects local water quality, what underlying cause contributes to the market failure observed in this scenario?

The underlying cause of the market failure in this scenario is a negative externality, which occurs when the production of a good, like copper, creates harmful effects that are not reflected in its market price. In this case, the pollution from copper production harms local water quality, affecting the health of the community and the environment. Because the company does not have to pay for the costs associated with the pollution, it has little incentive to reduce its negative impact. This leads to overproduction of copper since the true costs of production, including environmental damage, are not considered. For example, if a copper mine pollutes a river, local fishermen may find it harder to catch fish, leading to a decline in their income, which is a cost that the copper producers do not account for in their business.