Question

Taxes cause deadweight losses because they

A. distort incentives to both buyers and sellers.
B. prevent buyers and sellers from realizing some of the gains from trade.
C. All of the other options are correct.
D. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue.

Answer 1

The correct answer is C. All of the other options are correct.

Step-by-step explanation:

In economics, it means that there is a loss of surplus because the imposition of taxes discourages the exchange of goods and services. This can be interpreted in the behavior of the consumer and seller, since their action is executed directly in the buying and selling processes. When the buyer's benefit from acquiring a good is modified by a high tax rate, then a decline in the purchase may occur to avoid incurring high costs.

Answer 2

All of the other options are correct.

Step-by-step explanation:

Deadweight losses can be described as losses that is made to the economy, this is as a result of taxes or price control. Deadweight losses occur when supply and demand are not balanced, if this happens it will eventually lead to market inefficiency.

Taxes can be defined as the amount of money charged by the government which is above the selling price of a particular good or service.

Taxes can lead to deadweight loss when there is an increase in the price of a product which will eventually lead to a drastic decrease in the demand of the product.