Taxes cause deadweight losses because taxes
A)reduce the sum of producer and consumer surpluses by more than the amount of tax revenue.
B)prevent buyers and sellers from realizing some of the gains from trade.
C)cause marginal buyers and marginal sellers to leave the market,causing the quantity sold to fall.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

All of the above are correct. Taxes can reduce the sum of producer and consumer surpluses by more than the amount of tax revenue, prevent buyers and sellers from realizing some of the gains from trade, and cause marginal buyers and marginal sellers to leave the market, resulting in a decrease in the quantity sold. These losses are referred to as deadweight losses.

Taxes Cause Deadweight Losses Because Taxes