The demand for oil is very inelastic in the short run, but becomes more elastic in the long run. The supply of oil is more elastic than the demand for oil in the short run. The supply elasticity also increases in the long-run, but by a lesser degree than the elasticity of demand increases. If a tax of $5 per barrel of oil is imposed on oil producers: a. In the short run, the incidence of the tax will fall mainly on oil consumers and the net deadweight loss to the economy will be relatively small, but in the long run, the incidence of the tax will shift more towards oil producers, although the oil consumers will still effectively pay for most of the tax, and the net deadweight loss to the economy will be larger than in the short run. b. In the short-run, the incidence of the tax will fall mainly on oil consumers and the net deadweight loss to the economy will be relatively large, but in the long run, the incidence of the tax will shift more toward oil producers, although the oil consumers will still effectively pay most of the tax, and the net deadweight loss to the economy will be smaller than in the short run. c. In the short run, the incidence of the tax will fall mainly on oil producers and the net deadweight loss to the economy will be relatively large, but in the long run, the incidence of the tax will shift more toward oil consumers, although the oil producers will still effectively pay for most of the tax, and the net deadweight loss to the economy will be smaller than in the short run. d. In the short run, the incidence of the tax will fall mainly on oil producers and the net deadweight loss to the economy will be relatively small, but in the long run, the incidence of the tax will shift more toward oil consumers, although the oil producers will still effectively pay most of the tax, and the net deadweight loss to the economy will be larger than in the short run.
b??
a or b…i guess b
Either A or B but B makes more sense. Short run: Supply is more elastic than demand Long Run Demand is more elastic than supply I go with B
b
b the difference in elasticity of supply and demand is decreasing in the long run thus the dwl is decreasing as well…if elasticity of supply and demand are the same there is no dwl…i think at least
I’d say A. I think most ppl can grasp the tax burden. w.r.t. the deadweight loss, i think its lower in the short run. with a steeper demand curve, the quantity change is smaller than with a flatter demand curve (as in the long run). since the dead weight loss is (change in quantity)*(per unit tax)*1/2, with a larger change in quantity (as in the long run) there will be a larger DWL.
“a” is correct. In the short run, buyers who are facing an inelastic demand curve won’t have any alternatives to oil and will be forced to bear the burden of the higher tax. In the long run, buyers will find alternatives to oil or will be able to conserve on its use, and the demand curve for oil will become more elastic. Then, the tax burden will be shifted toward producers, but probably will still be borne mostly by consumers. These can get tricky!
I’m still sticking with A, but im revising why. the per unit tax thing was wrong. In regards to elasticity, as elasticity of either demand or supply decreases, the loss decreases. so when both of them are inelastic (in the short run) the loss is less. When both become more elastic, the loss increases.