Question

Why do taxes and subsidies create deadweight losses?

Answer 1

Answer :

taxes and subsidies create deadweight losses :

taxes create deadweight losses :

1)Taxes make dead weight reduction since individuals purchase less items that is all the more expensive after assessment is applied,than it would before the duty is applied.Thus there is loss of consumer overflow ,loss of something great economically that happens,but couldn't understood due to imposition of tax.

Subsidies create deadweight losses :

2)Economic effectiveness because of endowment as subsidy, a money related help causes more than socially best measure of good is delivered and higher creation happens at lower value in this manner there is decline in cs and ps.