Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

Name: Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.
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Question

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Taxes increase the price buyers pay and decrease the price sellers receive, leading to a reduction in the quantity traded compared to a no-tax scenario. This reduction in trade results in lost gains from trade, known as deadweight losses.

Taxes Cause Deadweight Losses Because They Prevent Buyers and Sellers