Friday, March 10, 2006

dwl

If the government imposes a tax on heating oil:

a. Would the DWL on this tax likely be greater in the first year it is imposed, or the fifth year?

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

6 comments:

emkatbuto said...

A. With the tax implaced on heating oil the DWL would be greater in the first year. Because consumers have less of a time to react to the tax and price hike. After five years the consumers can react and move the D curve down causing the DWL to decrease.
B. The TR collected after the tax is inplace would be greater in the first year again because of that D shift again, the TR the government gets would decrease after the fifth year.

Joe Madden said...

I believe that the dead weight loss would be greater over time. heating oil is a fairly in elastic good...this leads to a smaller dwl...over time, it will become more elastic...so the tax will have more effect....

Tax revenue would be the greates in the first year, because there would be more demand than five years down the road.

cranjos said...

after the first day of these notes i thought this section/chapter/ unit, whatever it is, would be fairly easy...i thought finding DWL would be real easy since I know what a triangle looks like, but after that little colored test thing on Friday, I have changed my opinion on this stuff

Reid said...

a. I believe that the dwl would be less at first and then gradually increase as time goes on. Why? Because when people find out about a tax increase then what is the natural response...Conservation. The demand will then decrease. But, overtime, people will get used to the tax and would have settled it into their budget and the dead weight loss due to the increase in demand.

b. Going along with the first answer, when the demand for the good decreases, so does the dead weight loss and the revenue as well. This means that in the first year due to the decrease in demand the revenue will decrease.

KM said...
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KM said...

Sorry, Josh...the graphs are always changing.

But I can say - if there is a tax, there will be DWL, because of the nature of taxes.

As for the other answers, I actually like Reid's explanation the best - it takes both Emily's and Joe's into account. It really depends on if you are looking at long or short term - so both Emily and Joe are right. But Reid brings them together with explanation.

Good job, you guys!