Question

Taxes cause deadweight losses because they A. lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. B. distort incentives to both buyers and sellers. C. prevent buyers and sellers from realizing some of the gains from trade. D. All of the above are correct.

Answer 1

D. All of the above are correct.

Step-by-step explanation:

Tax is a compulsory amount levied by the government or an agency of the government on certain goods and services.

Deadweight loss of tax refers to the loss in economic efficiency as a result of tax.

Taxes increase the price of goods and services. Thus, they tend to reduce consumer surplus tends to reduce.

The amount received by producers also falls, so producer surplus also falls.

Gains of trade would also reduce due to the fall in consumer and producer surplus.

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