Answer
a) The deadweight loss would be greater in the fifth year than in the first year.
b) Tax revenue would be greater in the first year than the fifth year.
Work Step by Step
a) In year one of the new tax, not many people would want to change their heating preferences. Over time, people would move to other heating sources, which would change the demand for heating oil.
b) In year one of the new tax, not many people would want to change their heating preferences. Since not may people would want to change their heating preferences, demand for heating oil is more inelastic. Thus, the tax revenue from heating oil is relatively high.
As time goes on, more people would substitute heating oil for gas or electricity. Thus, the tax revenue would decrease in year five.
