Taxes create deadweight losses because they

A) reduce profits of firms.
B) distort incentives.
C) cause prices to rise.
D) create revenue for the government.

Deadweight Losses

Economic inefficiencies that occur when the market equilibrium is not achieved, often due to external interference such as taxes or monopolies, resulting in a loss of total surplus.

Distort Incentives

When external factors or policies alter the natural motivations that influence individual or business decisions, potentially leading to inefficient outcomes.

Revenue

The income generated from normal business operations and before any expenses are deducted.