Final answer:
The correct answer is that taxes cause deadweight losses because they prevent both buyers and sellers from realizing some of the gains from trade. Deadweight loss occurs because taxes act as a barrier to transactions that could have benefited both parties, leading to an inefficient outcome and a reduction in society's total surplus.
Step-by-step explanation:
The correct statement is: a. taxes cause deadweight losses because they prevent both buyers and sellers from realizing some of the gains from trade. Taxes lead to a reduction in the total surplus of society, which is a combination of consumer surplus and producer surplus. Deadweight loss, represented by the area U + W in the referenced figure, occurs due to the inefficient quantity produced as a result of the tax imposition. This inefficiency is caused because the tax acts as a type of price control, preventing some transactions that buyers and sellers would otherwise willingly engage in. This results in a loss to society because the potential gains from these transactions are not realized.
Economists are concerned with designing a tax system that minimizes these distortions and deadweight losses. The goal is to raise the necessary revenue and achieve redistribution of income without unnecessarily hindering the decisions and transactions of individuals and firms.