A tax on a product causes a deadweight loss because:

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When a tax is imposed on a product, it increases the cost of production for the producers, which in turn reduces the quantity supplied. It also reduces the quantity demanded by consumers as they have to pay a higher price. The combination of reduced quantity supplied and reduced quantity demanded results in a deadweight loss or inefficient allocation of resources. The tax thus distorts the incentives of producers and consumers and causes them to produce and consume a lower quantity than the efficient level.

A Tax on a Product Causes a Deadweight Loss Because