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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Suppose that the government imposes a tax on heating oil.

a. Would the deadweight loss from this tax likely be greater in the first year after it is imposed or in the fifth year? Explain.

b. Would the revenue collected from this tax likely be greater in the first year after it is imposed or in the fifth year? Explain.

Subpart (a):

To determine
The impact of tax on heating oil over time.

Explanation

When the tax is imposed on the heating oil, the price of the heating oil will increase and this leads to the increase in the price of heating oil that the consumers pay. Thus, it will reduce the demand for the heating oil in the period of first year. Thus, there will be a deadweight loss in the economy in the first year after the tax is imposed but in the period of one year, those who own the oil heaters will not replace the existing heaters...

Subpart (b):

To determine
The impact of tax on heating oil over time.

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