The excess burden of a tax reflects a reduction of
A)allocative inefficiency.
B)total tax revenues.
C)total economic surplus.
D)both equilibrium price and quantity.
E)economic profits generated in the economy.

Question

Quizplus · Accepted Answer

The excess burden of a tax, also known as the deadweight loss, represents a loss of total economic surplus caused by allocative inefficiency. It reflects the reduction of the combined consumer and producer surplus in the affected market caused by the tax. It does not directly affect total tax revenues, which depend on the tax rate and the tax base. The equilibrium price and quantity may be affected by the tax, but this is not the main source of deadweight loss. Economic profits are not directly related to the excess burden of a tax.

The Excess Burden of a Tax Reflects a Reduction of