(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.