If the government imposes a sales tax on a good, then the deadweight loss of the tax is the
A)reduction in the sum of the consumer surplus and producer surplus.
B)gain in the sum of the consumer surplus and producer surplus.
C)tax revenue.
D)reduction in the sum of the consumer surplus and producer surplus, and the gain in the tax revenue.
E)gain in the sum of the consumer surplus and producer surplus plus the tax revenue.

Question

Quizplus · Accepted Answer

The deadweight loss of a tax is the reduction in the sum of consumer and producer surplus. It represents lost gains from trade that occur because the tax discourages some mutually beneficial transactions from taking place. The deadweight loss occurs when the reduced quantity trades due to the tax results in a loss of surplus that exceeds the tax revenue generated.

If the Government Imposes a Sales Tax on a Good