CLA-1

(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.