MACROECONOMICS-W/MINDTAP
MACROECONOMICS-W/MINDTAP
15th Edition
ISBN: 9781305361409
Author: Gwartney
Publisher: CENGAGE L
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Chapter ST1, Problem 1CQ
To determine

Influence of taxes on the efficiency of resource use.

Expert Solution & Answer
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Explanation of Solution

The tax will reduce the efficiency because taxes are the burden imposed by the government on its citizens on the consumption of goods and services. If the burden is imposed on the society as tax, it will lead to problems such as compliance cost and dead weight loss. The compliance cost arises due to the cost of collecting tax. The dead weight loss arises due to the imposition of tax, which reduces the producer and consumer surplus in the economy. This leads to the reduction of efficiency of resource use in the economy.

Economics Concept Introduction

Dead weight loss: Dead weight loss is a loss of economic efficiency that arises due to the allocative inefficiency when the goods and services are unable to achieve the market equilibrium.

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