Taxes create deadweight losses because they
A)reduce costs for firms.
B)distort incentives.
C)cause prices to decrease.
D)create revenue for the government.

Question

Quizplus · Accepted Answer

Taxes distort incentives by making certain goods and services more expensive, reducing the willingness of consumers to buy them, and discouraging suppliers from producing them. This results in deadweight losses or inefficiencies in the economy. A, C, and D are not accurate because taxes do not necessarily reduce costs for firms, lower prices, or solely create revenue for the government.

Taxes Create Deadweight Losses Because They