Which of the following statements about taxes is incorrect?
A) Taxes in markets always cause deadweight losses.
B) If the good causes an external cost, taxes actually reduce deadweight loss.
C) Both taxes and tradeable allowances in a market that has external costs can lead to the efficient quantity.
D) Taxes on producers cause the supply curve for the product to shift to the left.

Question

Quizplus · Accepted Answer

Taxes in markets can sometimes cause deadweight losses, but it depends on the specific circumstances. For example, if the market has external costs, a tax can lead to a reduction in deadweight loss by internalizing the external cost. Additionally, if the demand for the good is relatively inelastic, the deadweight loss from the tax may be small. Therefore, it is not always the case that taxes in markets cause deadweight losses.

Which of the Following Statements About Taxes Is Incorrect