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

Question

Quizplus · Accepted Answer

Deadweight loss refers to the loss of economic efficiency when the equilibrium outcome is not achievable or not achieved. It represents the loss of potential gains from trade due to activities that are forgone because the tax makes them less attractive or viable.

The Deadweight Loss (Or Excess Burden) Resulting from Levying a Tax