A deadweight loss results from the imposition of a tax on a good because the tax
A) induces the government to increase its expenditures.
B) reduces the quantity of exchanges between buyers and sellers.
C) causes a disequilibrium in the market.
D) imposes a loss on buyers that is greater than the loss to sellers.

Question

Quizplus · Accepted Answer

A tax reduces the quantity of exchanges between buyers and sellers by increasing the price buyers pay and decreasing the price sellers receive, leading to a loss of economic efficiency and creating a deadweight loss.

A Deadweight Loss Results from the Imposition of a Tax