Deadweight loss is the:
A)reduction in total surplus that results from a tax
B)loss of profit to businesses when a tax is imposed
C)reduction in consumer surplus when a tax is placed on buyers
D)decline in government revenue when taxes are reduced in a market

Question

Quizplus · Accepted Answer

Deadweight loss is the loss of total surplus (consumer and producer surplus) that occurs when the quantity of a good or service transacted is below the efficient equilibrium quantity. This inefficient outcome is typically caused by a tax that creates a wedge between the price paid by buyers and the price received by sellers, making some transactions unprofitable and reducing the quantity of the good or service exchanged. The reduction in total surplus is the deadweight loss of the tax.

Deadweight Loss Is The