When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold than otherwise the tax has ?
Correct answer: A. caused a deadweight loss
- A. caused a deadweight loss
- B. decreased equity
- C. generated no tax revenue
- D. increased efficiency
Explanation
When a tax reduces the quantity traded below the efficient level, the gains from trades that no longer occur are lost. This lost surplus is called deadweight loss.
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About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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