Asked by Laura-Leigh Holley on May 11, 2024
Verified
In terms of gains from trade, why is it true that taxes cause deadweight losses?
Gains from Trade
Gains from trade refer to the increase in consumer and producer surplus that occurs when countries specialize in the production of goods and services in which they have a comparative advantage and then trade with others.
Deadweight Losses
Losses in social welfare, usually measured in terms of lost revenue or surplus, resulting from inefficiencies in a market or the economy.
Taxes
Necessary financial levies or assorted kinds of dues imposed on an individual by a governmental structure to facilitate government finance and numerous public investments.
- Acquire insight into the notion of deadweight loss due to taxes and its impact on the functionality of markets.
- Comprehend the shift in consumer and producer surplus as a result of taxation.
Verified Answer
ZJ
Zugeily JoanneMay 11, 2024
Final Answer :
Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.
Learning Objectives
- Acquire insight into the notion of deadweight loss due to taxes and its impact on the functionality of markets.
- Comprehend the shift in consumer and producer surplus as a result of taxation.