A tax creates deadweight loss because it distorts the market equilibrium by changing the prices that buyers and sellers are willing to pay and receive for goods and services. This leads to a misallocation of resources and a decrease in economic efficiency, as some transactions that would have been mutually beneficial without the tax no longer occur due to the increased costs. This results in a loss of total surplus in the market, known as deadweight loss. Essentially, the tax creates inefficiencies by reducing the quantity of goods and services exchanged and causing a net loss of economic value.
