This article will discuss the concept of taxation and deadweight loss, which is the economic cost of taxation. It will explain how taxation affects the market and how it can lead to a decrease in economic efficiency. It will also discuss the various types of taxes and how they can create deadweight losses
In economics, deadweight loss is the loss of societal economic welfare due to production/consumption of a good at a quantity where marginal benefit does not equal marginal cost. In other words, there are either goods being produced despite the cost of doing so being larger than the benefit, or additional goods are not being produced despite the fact that the benefits of their production would be larger than the costs. The deadweight loss is the net benefit that is missed out on. While losses to one entity often lead to gains for another, deadweight loss represents the loss that is not regained by anyone else. This loss is therefore attributed to both producers and consumers.