Why does a tax have a deadweight loss
A)because it induces the government to run a deficit
B)because it induces buyers to consume less and sellers to produce less
C)because it causes a disequilibrium in the market
D)because the loss to buyers is greater than the loss to sellers

Question

Quizplus · Accepted Answer

A tax creates a deadweight loss because it changes the prices of goods and services, which induces buyers to consume less and sellers to produce less, resulting in a reduction in consumer surplus and producer surplus. This reduction, which is the deadweight loss, occurs because the tax has disrupted the market's equilibrium. Taxes do not necessarily induce the government to run a deficit; it depends on the government's policies and other factors. The loss to buyers and sellers may not be equal or greater to one another; it depends on the tax's incidence and the market's characteristics.

Why Does a Tax Have a Deadweight Loss