Suppose the nation of Island is an importer of textiles and is looking for a way to
Question:
Suppose the nation of Island 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.
Having rejected a tariff on textiles (a tax on imports), the president of Island 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 Island is , and the quantity produced in Island is .
The following table shows the effect of an import tariff on the nation of Island.
Complete the remaining columns of the following table by indicating the effect of the same-sized tax on textile consumption.
The raises more revenue for the government, and the has a smaller deadweight loss associated with it.
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