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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
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.
\fHaving 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 V , and the quantity produced in Isoland is V The following table shows the effect of an import tariff on the nation of Isoland. m 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 'V , and the quantityr produced in Isoland is 'V . The following table shows the effect of an import tariff on the nation of Isoland. a 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+G A+B+C+E+G - (D +F)The V raises more revenue for the government, and the V has a smaller deadweight loss associated with it. 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 A+ B +C Producer Surplus G C +G +C Government None E +E A + B + C + D + E +F Revenue A Total Surplus A+B+C+D+E+F+G A+B+C+E+G - (D +F) A +BStep by Step Solution
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