Question

A deadweight loss is a consequence of a tax on a good because the tax

a. imposes a loss on buyers that is greater than the loss to sellers.
b. induces buyers to consume less, and sellers to produce less.
c. increases the equilibrium price in the market.
d. induces the government to increase its expenditures.

Answer 1

b. induces buyers to consume less, and sellers to produce less.

Step-by-step explanation:

Because of the increase of tax on each good, it will cause a deadweight loss. At higher tax rates we consumers tend to consume less, the decrease in demand will inevitably decrease the supply therefore sellers will produce less.