Suppose the nation of Isoland is an importer of textiles and is looking for a way to raise government revenue. The following graph shows the effect of a tariff on textile imports. Supply A B P+T D! E Demand P. .1 Quantity of Textiles 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 will be the quantity consumed under a tariff, and the quantity produced in Isoland will be the quantity produced under a tariff. 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. Under Tariff Under Consumption Tax Before Tariff or Tax After Change After Change Consumer A +B+C+D+E+F A +B - (C+D+E+F) Surplus Producer Surplus G C+G +C Government None E +E Revenue Total Surplus A +B+C+D+ E +F+GA+B+C+E+G – (D+F) The raises more revenue for the government, and the has a smaller deadweight loss associated with it. Price of Textiles

Suppose the nation of Isoland is an importer of textiles and is looking for a way to raise government revenue. The following graph shows the effect of a tariff on textile imports. Supply A B P+T D! E Demand P. .1 Quantity of Textiles 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 will be the quantity consumed under a tariff, and the quantity produced in Isoland will be the quantity produced under a tariff. 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. Under Tariff Under Consumption Tax Before Tariff or Tax After Change After Change Consumer A +B+C+D+E+F A +B - (C+D+E+F) Surplus Producer Surplus G C+G +C Government None E +E Revenue Total Surplus A +B+C+D+ E +F+GA+B+C+E+G – (D+F) The raises more revenue for the government, and the has a smaller deadweight loss associated with it. Price of Textiles

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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