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. a. Using Figure 4, identify the quantity consumed and the quantity produced in Isoland under a textile consumption tax. b. Construct a table similar to that in Figure 4 for the textile consumption tax. c. Which raises more revenue for the government—the consumption tax or the tariff? Which has a smaller deadweight loss? Explain.

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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter 9, Problem 8PA
Textbook Problem

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.

a. Using Figure 4, identify the quantity consumed and the quantity produced in Isoland under a textile consumption tax.

b. Construct a table similar to that in Figure 4 for the textile consumption tax.

c. Which raises more revenue for the government—the consumption tax or the tariff? Which has a smaller deadweight loss? Explain.

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