Impact of consumption tax on welfare of in dividual parties

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Reference no: EM131196383

Having rejected a tariff on steel (that is, a tax on steel imports), the Prime-Minister of Isoland (a small open economy) is now considering a specific tax on all steel consumption in isoland (both domestically sources steel and imported steel).

(a) Illustrate the impact of the consumption tax in an appropriate partial equilibrium Marshallian-cross diagram.

(b) Analyse the impact of the consumption tax on the welfare of in- dividual parties and overall economic efficiency.

(c) Does the consumption tax raise more, identical, or less tax revenue than a tariff set at the same rate? Explain the reasons for your answer.

(d) Does the consumption tax generate a higher, identical, or lower deadweight loss than a tariff set at the same rate? Explain the reasons for your answer.

Reference no: EM131196383

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