Why Does a Tax Have a Deadweight Loss

question 71

Multiple Choice

Why does a tax have a deadweight loss

• A)because it induces the government to run a deficit
• B)because it induces buyers to consume less and sellers to produce less
• C)because it causes a disequilibrium in the market
• D)because the loss to buyers is greater than the loss to sellers

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Definitions:

Present Value

Today’s value of some amount of money that is to be received sometime in the future.

User Cost

The opportunity cost of extracting and selling a nonrenewable natural resource today rather than waiting to extract and sell the resource in the future; the present value of the decline in future revenue that will occur because a nonrenewable natural resource is extracted and sold today rather than being extracted and sold in the future.

Market Price

The current price at which a good or service can be bought or sold in a marketplace.

User Cost

The cost of using a good or service, which includes the opportunity cost of choosing one alternative over others.