1. Taxes and International Trade: Examples and Exercises Lecture 9 – academic year 2014/15 Introduction to Economics Fabio Landini

2. Example.. Taxes in the headings..

3. Is this a tax that generate fiscal revenue ?

4. 4 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.

5. 5 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)? Ex. 9.2

6. 6 a)The two equations describe the market: Q S = 2P Q D = 300 – P Ex. 9.3

7. 7 Find equilibrium price and quantity Ex. 9.3

8. 8 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 Ex. 9.3

9. 9 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. Ex. 9.4

10. 10 In the country of Copperland – whose economy is is completely closed – the price of copper is 10 Eurocent (for 100 Kg.). Ex. 9.5

11. 11 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. Ex. 9.5