Deadweight losses occur in markets in which
A)firms decide to downsize.
B)the government imposes a tax.
C)profits fall because of low consumer demand.
D)equilibrium prices fall.

Question

Quizplus · Accepted Answer

Deadweight losses occur in markets when the government imposes a tax. This tax creates a wedge between the price paid by the buyer and the price received by the seller, reducing the quantity of goods traded and causing a deadweight loss. This loss is the difference between the value consumers place on the good and the cost of production, and represents an inefficiency in the market. The other choices do not necessarily lead to deadweight losses in markets.

Deadweight Losses Occur in Markets in Which