higher tax reduces the total size of the market; Although taxes are taking a larger slice of the "pie," the total size of the pie is reduced. Just as in the nail example above, beyond a certain point, the market for a good will eventually decrease to zero. Deadweight loss of a monopoly A deadweight loss occurs with monopolies in the same way that a tax causes deadweight loss. When a monopoly, as a "tax collector," charges a price in order to consolidate its power above marginal cost, it drives a "wedge" between the costs born by the consumer and supplier. Imposing this effective tax distorts the market outcome, and the wedge causes a decrease in the quantity sold, below the social optimum. It is important to remember the difference between the two cases: whereas the government receives the revenue from a genuine tax, monopoly profits are collected by a private firm. See also Excess burden of taxation Land value tax Optimal tax Pareto efficiency Tax choice References Further reading . External links Worthwhile Canadian Initiative "Too much stuff: the deadweight loss from overconsumption" Imperfect competition Price controls Scarcity Welfare economics de:Ökonomische Wohlfahrt#Wohlfahrt und Wohlfahrtsverlust