The deadweight loss of a tax

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The deadweight loss of a tax is the loss in total surplus (i.e. the combined consumer and producer surplus) that occurs as a result of a tax, due to a reduction in the quantity of goods traded in the market. This loss is part of the total burden of a tax, which also includes the revenue collected by the government and the change in consumer and producer surplus. The deadweight loss represents an inefficiency in the market caused by the tax, and can be seen as a measure of the net loss to society from the tax.

The Deadweight Loss of a Tax