Deadweight losses from taxation are equal to:
A)the reduction in revenue a supplier suffers from the imposition of the tax
B)taxes that target expenditures on social security
C)the reduction in consumer surplus resulting from the tax
D)the change in people's behaviour as a result of the tax

Question

Quizplus · Accepted Answer

Deadweight losses from taxation refer to the loss of overall economic efficiency that occurs due to a tax. These losses occur because taxes generally reduce the amount of economic activity within a market, which in turn reduces the surplus enjoyed by producers and consumers. The reduction in consumer surplus resulting from the tax is the correct explanation of deadweight loss as it refers to the reduction in benefits that consumers receive from purchasing a good or service, due to the tax that has been imposed on it, and is a measure of lost economic efficiency.

Deadweight Losses from Taxation Are Equal To