 
  Government Taxation Causes A Deadweight Loss For The Economy   …   Figure 1:   For the economy, maximization of total consumer + producer surplus is the goal   Consumer surplus (satisfaction) is the price consumers are willing to pay for a good minus the price they actually pay for it .   Producer surplus (profit) is the price producers receive for a good minus their costs of producing that good.   In Figure 1, maximum total surplus is at equilibrium E.   …   Figure 2:   Pre-tax total surplus = consumer surplus (A + B + C) + supplier surplus (D + E + F).   Government needs tax revenues, but taxation creates deadweight loss.   Government tax revenue = B + D   Consumer and producer surplus reduced to A and F   Deadweight loss caused by taxation = C + E   …   Figure 3:   Example of deadweight loss.   Consumer surplus:   Joe values a pizza at $8, the maximum he would pay for a pizza.   Jane values pizza at $6.   The pre-tax price of pizza is $5, so both Joe and Jane will buy one.   J...
