Taxes cause deadweight losses because they prevent buyers and sellers from realising some of the gains from trade.

Name: Taxes cause deadweight losses because they prevent buyers and sellers from realising some of the gains from trade.
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Question

Quizplus · Accepted Answer

Taxes increase the price of the taxed goods, which reduces the quantity demanded and/or supplied. As a result, some mutually beneficial trades that would have occurred at a lower price do not happen, leading to a deadweight loss.

Taxes Cause Deadweight Losses Because They Prevent Buyers and Sellers