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Assume you are working for the US government. The president wants your department to study the...

Assume you are working for the US government. The president wants your department to study the clothing market. The US governments need to raise revenues from the Clothing market, and you are assigned to study the cotton shirt market. You have access to the previous data: - If P = 20 then ???? = 80. If P = 30 then ???? = 70. - If P = 20 then ???? = 25. If P= 30 then ???? = 40. The US government needs at least 200 dollars of revenues raised from this market. If you raise more than that the government will accept the money but the president prefers you only raise that amount. So, make sure you do not make people pay too much unless you must. (The government revenue >= 200)

The US government needs at least 200 dollars of revenues raised from this market. If you raise more than that the government will accept the money but the president prefers you only raise that amount. So, make sure you do not make people pay too much unless you must. (The government revenue >= 200)

a.) Try to impose a tax. You consider imposing X dollar amount of tax on each shirt being sold. You can impose this tax on buyers or sellers. Which one do you prefer? How much will be the tax imposed on each shirt? How much will the consumer surplus and producer surplus in this market change after you introduce this tax?

b.) The President signed a free trade agreement with the Japanese prime minister. The shirt market is operating under free trade now with a world price of 20 dollars. Instead of taxing the market, you can impose a tariff to raise revenues for the government without hurting the domestic producers. How much will be tariff you impose on foreign-made shirts? How much will the consumer surplus and producer surplus change after you impose this tariff?

c.) Now that the shirt market is open to foreign producers as well, you can tax, impose a tariff, or use a combination of both. Provide an optimal policy for the US government to raise the needed revenues while minimizing the damage to American consumers and producers.

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ekkarill92 answered 1 year ago
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