Conclude, based on the elasticity classifications, their effect on tax revenue a

Question

Conclude, based on the elasticity classifications, their effect on tax revenue and tax incidence, and which goods the government would prefer to tax.
Project Part 2 Introduction: Suppose that the U.S. currently buys and produces wingdings, a fictitious economic good. The U.S. faces the world price, and domestic suppliers sell as many
GE273: Project
Page 2
wingdings as possible at the world price. Now, the government succumbs to lobbying by
wingding producers and imposes a protective tariff on wingdings amounting to $2 per
wingding. The graph below represents this situation.
World Price
World Price + Tariff
U.S. Supply
U.S. Demand
Price
Quantity (millions of pounds)
6 12 16 18 26
6
8
10
4
Market for Wingdings
Part I: Answer the following questions. Use formulas and show calculations as well as final
answers.
A. Does the United States have a comparative advantage in wingdings? Explain.
B. Discuss the effect of the tariff on the number of imports..
C. How did the imposition of the tariff change consumer surplus?
D. How did the imposition of the tariff change producer surplus?
E. What is the overall result of the tariff in terms of welfare?
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Part II. Allowing free trade between countries can be beneficial, but it also imposes costs. Use the ITT Tech Virtual Library to research costs and benefits of allowing free trade. Discuss aspects of international trade that some may consider unfair. For example:
i. Distribution of costs and benefits of free trade. In other words, does everyone share in the gains and the costs equally?
ii. Competing with different labor restrictions (or lack of), such as slave or child labor.
iii. Differences in environmental standards. Answers vary.
Submission Requirements:
Attach a Word document of 500 minimum words.

Explanation / Answer

Elastic is an absolute value in excess of 1. Inelastic is an absolute value of between 0 and 1. When demand is inelastic buyers pay a greater portion of an increased tax, when demand is elastic sellers pay a greater portion. Thus, government would prefer to tax inelastic items

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