If the government imposes a tax on the sellers of radios, they will obviously need to increase the prices of their goods to make up for the loss in profit. This increase in price will deter individuals from purchasing the product which will cause an increase in deadweight loss as fewer people are interested in purchasing the radios.
At the same time, with fewer purchasers, the radio sellers will begin receiving less profit than before, even though they have adjusted the margin to be making the same per product as before. Because of this, producer surplus will fall as well. Sellers will be receiving less money as fewer people buy the product, and so their overall profit above equilibrium (which is the producer surplus) will decrease.
If a government imposes a tax on the product, the product obviously will cost more than before. Because of this, fewer people will end up purchasing the good, and the supply purchased (and possibly produced) will fall. Because of this, there will be a rise in deadweight loss, which is a result of inefficiency in the economic system where people aren't getting the best value for their purchase.
Producer surplus will also decrease, because they will receive slightly less profit than before because people will be buying fewer radios, the tax will negatively impact the amount they receive for each product, and other factors. In the end, while they are still earning a surplus amount above equilibrium, the producer surplus income will drop because of the tax.
If the government imposes a tax on the radios, the cost will either have to rise (for the producer to make the same amount of money) or the producer will have to take a smaller profit (for the consumer to buy the same amount).
Because of the law of diminishing returns and customer demands, there is a natural equilibrium point at which the best price is found—the customer is willing to pay a certain price for the product and the producer is willing to earn a certain amount for that product and the coincidental point between those two locations is the equilibrium price. If the price increases, demand will decrease because fewer consumers will be willing to purchase it. If the profit decreases, producers will be earning less from it, incurring loss.
Essentially, in either situation, consumer and producer surplus will decrease, and their respective deadweight loss will increase.
If the government places a tax on each radio that sellers produce, the outcome will be negative for both sellers and buyers. The consumer surplus will shrink and the producer surplus will also shrink. As the two surpluses shrink, deadweight loss increases.
Consumer surplus and producer surplus are essentially mirror images. Consumer surplus is the difference between what consumers actually pay for a good or service and what they would be willing to pay. Producer surplus is the difference between the amount the producer actually receives when they sell a good or service and the minimum amount they would be willing to accept. You can see these on a supply-demand graph if you draw a horizontal line from the equilibrium price over to the y-axis. The area between the line and the demand curve is the consumer surplus and the area between the line and the supply curve is the producer surplus. (Please follow the links below to see this illustrated.)
If a tax is imposed, both surpluses shrink. The consumer pays a higher price and does not get as much product as if there were no tax. The producer produces less and gets less money than if there were no tax. In these ways, their respective surpluses both shrink. When this happens, instead of consumer surplus or producer surplus, you get deadweight loss, which is the cost to society (the consumers and producers) of the economic inefficiency created by the tax.
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