Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases consumer surplus
B
It leads to inefficiencies in resource allocation
C
It raises government revenue
D
It decreases producer surplus
Understanding the Answer
Let's break down why this is correct
Answer
Deadweight loss occurs in a market affected by taxes because the tax changes the way buyers and sellers interact. When a tax is imposed, it raises the price buyers pay and lowers the price sellers receive, leading to fewer transactions. This means that some trades that would have happened without the tax no longer occur, which reduces overall economic efficiency. For example, if a tax is placed on a product, some consumers might decide not to buy it because it's too expensive, which hurts both the seller and the buyer. As a result, the total benefit to society is less than it could be without the tax, creating a loss that is not captured by the government or anyone else.
Detailed Explanation
Deadweight loss happens when taxes cause resources to be used less efficiently. Other options are incorrect because Some might think taxes increase consumer surplus, but they actually make goods more expensive; While taxes do raise money for the government, this isn't the main issue.
Key Concepts
economic welfare
market distortions
Topic
Graphing Deadweight Loss
Difficulty
medium level question
Cognitive Level
understand
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