-The figure above shows the impact of an income tax.The deadweight loss created by the income tax equals area

Question

Quizplus · Accepted Answer

Deadweight loss refers to the loss of economic efficiency when the equilibrium outcome is not achievable or not achieved. In the context of an income tax, it represents the reduction in the amount of trade or economic activity due to the imposition of the tax. The area bce typically illustrates this concept by showing the economic activities that are no longer occurring due to the tax. This area represents the transactions that would have happened in the absence of the tax but are not happening due to the tax, hence the loss in efficiency or deadweight loss.

-The Figure Above Shows the Impact of an Income Tax