A deadweight loss is a consequence of a tax on a good because the tax
A)induces the government to increase its expenditures.
B)induces buyers to consume less,and sellers to produce less.
C)increases the equilibrium price in the market.
D)imposes a loss on buyers that is greater than the loss to sellers.

Question

Quizplus · Accepted Answer

A tax on a good leads to an increase in its price, which results in buyers consuming less and sellers producing less. The reduction in quantity traded, as a result, causes a deadweight loss, which is the decrease in consumer and producer surplus that exceeds the revenue raised by the government from the tax. Hence, the correct option is B, and the other options are incorrect.

A Deadweight Loss Is a Consequence of a Tax on a Good