Suppose That The Government Imposes A Tax On Heating Oil

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Suppose That The Government Imposes A Tax On Heating Oil

. The deadweight loss from a tax on heating oil is likely to be _______ in the fifth year after it is imposed rather than the first year.
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Larger Explanation: The deadweight loss from a tax on heating oil is likely to be greater in the fifth year after it is imposed rather than the first year. In the first year, the elasticity of demand is fairly low, as people who own oil furnaces are not likely to get rid of them right away. But over time they may switch to other energy sources, and people buying new furnaces for their homes will more likely choose gas or electric, so a tax will have a greater impact on quantity. Thus, the deadweight loss of the tax will become larger over time. See Section: Deadweight Loss and the Gains from Trade.
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