Effects of The Imposition of An Export Tax Using Demand Diagram Paper

CLA 1 Comprehensive learning Assessment I

(a) Using a demand/supply diagram, illustrate and explain the effects of the imposition of an export tax on a good Y by a home country’s government on

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(i) the home country’s consumers of Y,

(ii) the home country’s producers of Y, and

(iii) the home government’s tax revenues.

(Assume that the country is a “small” country.) Then evaluate the “net welfare effect” of the tax on the country. Why might a country want to impose an export tax? Explain.

(b) Suppose now that the country imposing the export tax in part (a) of this question is a “large” country rather than a “small” country. Is it an advantage or a disadvantage for a country to be “large” rather than “small” when it imposes an export tax? Explain. )