Deadweight losses represent the

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Deadweight losses represent the inefficiency that taxes create by reducing the quantity of goods and services exchanged between producers and consumers, resulting in a loss of social welfare. Taxes increase the price of goods and services, which reduces consumer demand, and decrease the return on investment, which reduces producer supply, resulting in a smaller market size and a loss of efficiency. Deadweight losses also occur when subsidies are introduced into the market, which can lead to overproduction and underconsumption of goods, reducing social welfare.

Deadweight Losses Represent the