A tax on petrol is likely to ?
Correct answer: B. cause a greater deadweight loss in the long run when compared to the short run
- A. generate a deadweight loss that is unaffected by the time period over which it is measured
- B. cause a greater deadweight loss in the long run when compared to the short run
- C. None of these answers
- D. cause a greater deadweight loss in the short run when compared to the long run.
Explanation
Petrol demand and supply are generally more elastic over the long run because people can change vehicles, travel habits, and production methods. The tax therefore causes a larger quantity reduction and deadweight loss in the long run.
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Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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