Question

The deadweight loss of a tax is:

a. the degree to which the burden of the tax falls on consumers.
b. the amount of consumer and producer surplus that society loses by imposing the tax.
c. the decline in consumer surplus arising from the tax.
d. the amount of tax revenue taken from consumers and producers.

Answer 1

The deadweight loss of a tax is the amount of consumer and producer surplus that society loses by imposing the tax. It represents the inefficiency and reduction in social surplus that occurs when the economy produces at an inefficient quantity due to the tax.

Step-by-step explanation:

The deadweight loss of a tax is the amount of consumer and producer surplus that society loses by imposing the tax. It represents the inefficiency and reduction in social surplus that occurs when the economy produces at an inefficient quantity due to the tax.

For example, when a tax is imposed on a good, the price increases, reducing the quantity demanded and supplied. This decrease in quantity leads to a loss of consumer and producer surplus, which is the deadweight loss.

The deadweight loss is not the amount of tax revenue taken from consumers and producers (option d), nor is it the decline in consumer surplus arising from the tax (option c). It is specifically the loss of surplus that occurs as a result of an inefficient quantity produced in the market.