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Research question; A tax on exports

If you think you are well on top of the trade material presented you might want to consider the following issues.

Suppose a country such as Australia is a net exporter of a product produced by a competitive industry such as maize.

Suppose the government decides to impose an export tax on maize.

Show the following:

1. This tax will reduce the price of maize paid by consumers in Australia and increase their welfare compared to the situation where there is no tax.
2. Farmers growing maize lose as a consequence of the tax.
3. The tax is associated with deadweight losses in the sense that the value of the losses to local producers exceeds the gains to consumers plus the gain in tax revenue to the government.

It is a somewhat surprising set of outcomes until you understand the effects of the tax. Think about it and if you can explain what is going on post your views here!

A related question is set in next week’s tutorial.

4 comments to Research question; A tax on exports

  • Anonymous

    harry

    How should we understand this requirement “tabulate average and marginal costs for output x,y,z”? Please explain for me. Is that I need to setup a table to show the relationships between those number?

  • hc

    Set out a table of these costs for these outputs.

  • Anonymous

    When a country goes from a net exporter to a net importer (like the UK with oil), does this mean that its local market supply/demand forces (eg really high demand or very low supply or both) will raise the local equilibrium price above the world price? Can the world price also fall so low as for a nation to begin importing? Is this a common reason for the switch from exporter to importer, or are local supply/demand changes more attributable?

  • hc

    In the case of UK oil the costs of extracting it rose until it could no longer export. Australia has been in much the same position – we now import much of our oil.

    Yes if the price of oil fell to low levels the country could begin exporting again.