Question

Deadweight loss is the a. decline in government revenue when taxes are reduced in a market. b. decline in consumer surplus when a tax is placed on buyers. c. loss of profits to business firms when a tax is imposed. d. decline in total surplus that results from a tax.

Answer 1

Answer:

Decline in total surplus that results from a tax.

Explanation:

Deadweight loss can be defined as the loss of total welfare which could be as a result taxation. Taxes create deadweight by stopping potential buyers from purchasing a product due to a high price.

Taxes can lead to a decline in the value of transactions that occur between both the buyers and sellers.

Deadweight loss takes place when there is no balance between supply and demand, this may eventually lead to disorganization of the market.

Answer 2

Answer:

D, decline in total surplus that results from a tax.

Explanation:

Dead-weight loss is also known as excess burden. It is a situation where in there is a loss of economic sufficiency as a result of tax.

This economic sufficiency is when the supply of goods and services aren't met. That is, there is no market equilibrium between demand and supply. Taxes, subsidies, price rise or fall can be the reason for dead-weight loss as it causes the imbalance of demand and supply of goods or services to the consumers through price manipulations.

To calculate dead-weight loss, change in price as well as change in quantity demanded are important factors to consider.

Cheers.