Having rejected a tariff on textiles (a tax on imports), the president of Isoland is now considering the same-sized tax on textile consumption (including both imported and domestically produced textiles). Compared to the free trade scenario, the quantity of textiles consumed in Isoland will will under a textile consumption tax. The following table shows the effect of an import tariff on the nation of Isoland. Consumer Surplus Producer Surplus Government Revenue Total Surplus Complete the remaining columns of the following table by indicating the effect of the same-sized tax on textile consumption. Under Tariff Before Tariff or Tax A+B+C+D+E+F G None Compared to the tariff, the consumption tax raises After A + B A+B+C+D+E+F+G A+B+C+E+G deadweight loss associated with it. C +G E Change - (C+D+E+F) +C +E I - (D+F) and the quantity produced in Isoland Under Consumption Tax After Change revenue for the government, and has
Having rejected a tariff on textiles (a tax on imports), the president of Isoland is now considering the same-sized tax on textile consumption (including both imported and domestically produced textiles). Compared to the free trade scenario, the quantity of textiles consumed in Isoland will will under a textile consumption tax. The following table shows the effect of an import tariff on the nation of Isoland. Consumer Surplus Producer Surplus Government Revenue Total Surplus Complete the remaining columns of the following table by indicating the effect of the same-sized tax on textile consumption. Under Tariff Before Tariff or Tax A+B+C+D+E+F G None Compared to the tariff, the consumption tax raises After A + B A+B+C+D+E+F+G A+B+C+E+G deadweight loss associated with it. C +G E Change - (C+D+E+F) +C +E I - (D+F) and the quantity produced in Isoland Under Consumption Tax After Change revenue for the government, and has
Chapter17: International Trade
Section: Chapter Questions
Problem 2.5P
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