Question

Please answer why the answer is that answer

Suppose the government imposes a tax on heating oil. The deadweight loss from this tax will likely be greater in the (a) first year than in the fifth year because demand and supply will be more elastic in the first year than in the fifth year. (b) first year than in the fifth year because demand and supply will be less elastic in the first year than in the fifth year. (c) fifth year than in the first year because demand and supply will be more elastic in the fifth year than in the first year. (d) fifth year than in the first year because demand and supply will be less elastic in the fifth year than in the first year.

Answer 1

Dead weight loss is the fall in the goods traded because of an increase in the price due to tax on the goods. when the goods are inelatic then an increase in the price will not affect the traded goods more. IN the first year the demand and supply will be more inelastic as compared to fifth year because with passing time the goods in the market becomes more elastic. So the answer is "C" deadweight loss will be more in the fifth year because then the elasticity will be high,