(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
(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.
Provide your explanations and definitions in detail and be precise. Explain in your own words. Provide references for content when necessary. Support your statements with peer-reviewed in-text citation(s) and reference(s).
Sample Solution