The following table shows the effect of an import tariff on the nation of Isoland. Complete the remaining columns of the following table by indicating the effect of the same-sized tax on textile consumption. Before Tariff or Tax
The following table shows the effect of an import tariff on the nation of Isoland. Complete the remaining columns of the following table by indicating the effect of the same-sized tax on textile consumption. Before Tariff or Tax
Chapter6: Deductions And Losses: In General
Section: Chapter Questions
Problem 13DQ
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Question
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).
Under a textile consumption tax, the quantity of textiles consumed in Isoland is , and the quantity produced in Isoland is .
The following table shows the effect of an import tariff on the nation of Isoland.
Complete the remaining columns of the following table by indicating the effect of the same-sized tax on textile consumption.
|
|
Before Tariff or Tax
|
Under Tariff
|
Under Consumption Tax
|
||
|---|---|---|---|---|---|
|
After
|
Change
|
After
|
Change
|
||
| Consumer Surplus | A+B+C+D+E+FA+B+C+D+E+F | A+BA+B | −(C+D+E+F)−C+D+E+F | ||
| GG | C+GC+G | +C+C | |||
| Government Revenue | None | EE | +E+E | ||
| Total Surplus | A+B+C+D+E+F+GA+B+C+D+E+F+G | A+B+C+E+GA+B+C+E+G | −(D+F)−D+F |
Compared to the tariff, the consumption tax raises revenue for the government and has deadweight loss associated with it.
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Follow-up Question
Complete the remaining columns of the following table by indicating the effect of the same-sized tax on textile consumption.
|
|
Before Tariff or Tax
|
Under Tariff
|
Under Consumption Tax
|
||
|---|---|---|---|---|---|
|
After
|
Change
|
After
|
Change
|
||
| Consumer Surplus | A+B+C+D+E+FA+B+C+D+E+F | A+BA+B | −(C+D+E+F)−C+D+E+F | ||
| GG | C+GC+G | +C+C | |||
| Government Revenue | None | EE | +E+E | ||
| Total Surplus | A+B+C+D+E+F+GA+B+C+D+E+F+G | A+B+C+E+GA+B+C+E+G | −(D+F)−D+F |
Compared to the tariff, the consumption tax raisesless revenue for the government and hasa larger deadweight
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