Transcript Chapter 6

Taxes and International Trade:
Examples and Exercises
Lecture 9 – academic year 2014/15
Introduction to Economics
Fabio Landini
Example.. Taxes in the headings ..
Is this a tax that generate fiscal revenue ?
104.0
103.0
102.0
101.0
100.0
99.0
CONSUMI DI BIRRA
/4
20
10
/3
20
10
/2
20
10
/1
20
10
/4
20
09
/3
20
09
/2
09
20
20
09
/1
98.0
PREZZI DELLA BIRRA
Ex. 9.1
a) “If the Government introduced a tax on
land, the rich landowners would transfer (at
least part of) the tax burden to their poor
tenants”. Comment.
b) “If the Government introduced a tax on
real estate, the rich landlords would transfer
(at least part of) the tax burden to their
poor tenants”. Comment.
4
Ex. 9.2
Let’s consider the market for rubber.
a)How would the tax burden be shared if the
supply curve is elastic and the demand curve is
inelastic?
b)What if the reverse holds (i.e. supply is inelastic
and demand is elastic)?
5
Ex. 9.3
a) The two equations describe the market:
QS = 2P
QD = 300 – P
6
Ex. 9.3
Find equilibrium price and quantity
7
Ex. 9.3
Suppose that a tax T is introduced on consumption
a)Compute the price received by producers
b)Compute the price paid by consumers
c)Compute the new equilibrium quantity
d)Compute the fiscal revenue and net loss
8
Ex. 9.4
The world price of wine is lower than the one in US in
the absence of international trade.
Draw the graph of the US wine market with
international trade and show in a table the consumer
surplus, producer surplus and total surplus.
What are the effects of a destruction of harvest on the
world price? Show graphically and with a table what
happens in the US market.
9
Ex. 9.5
In the country of Copperland – whose economy is
is completely closed – the price of copper is 10
Eurocent (for 100 Kg.).
10
Ex. 9.5
Questions:
(a) If the world price of copper is 100 Eurocent (for 100
Kg.), show (even with the help of a graph) what
happens to equilibrium price and quantity when the
Government of Copperland decides to open the
economy to free trade.
(b) If the demand for copper is given by equation Q
= 500 - 2P, compute the surplus of Copperland’s
consumer before and after the opening of the
economy.
11