The deadweight loss resulting from levying a tax on an economic activity is
A) the tax revenue directed to the government as the result of the tax.
B) the loss of potential gains from trade from activities forgone because of the tax.
C) the increase in the price of an activity as the result of the tax levied on it.
D) the marginal benefits derived from the expansion in government activities made possible by the increase in tax revenues.

Question

Quizplus · Accepted Answer

Deadweight loss is the loss of potential gains from trade arising from market inefficiencies caused by distortions such as taxes. It represents the reduction in welfare that is caused by the tax and can result in a decrease in economic activity. Therefore, option B is the correct answer.

The Deadweight Loss Resulting from Levying a Tax on an Economic