Applying a tax to a good that is already underproduced will always lead to an increase in deadweight loss and further inefficiency in the market.

When a tax is applied to a good that is already underproduced, it can make the situation worse by creating more deadweight loss. Deadweight loss refers to the loss of economic efficiency that happens when the quantity of a good traded is less than what would occur in a perfectly competitive market. For example, if a small town has a local bakery that sells bread, and the demand is already low, adding a tax on the bread will likely cause the bakery to produce even less. This means fewer people can buy bread, leading to lost sales and less satisfaction for consumers, which creates further inefficiency. In this way, the tax not only reduces the amount of the good available but also harms the overall market by discouraging production and consumption even more.