Question

why might a tax on domestic consumption of resources critical for national security be a more...

why might a tax on domestic consumption of resources critical for national security be a more efficient approach than barriers to imports?

Homework Answers

Answer #1

When a country produces goods in which it has a comparative advantage and then trades with other countries then it enjoys gains of trade. Sometimes countries try to obstruct the trade using barriers like quotas, tariffs, etc. to protect the domestic industries.
When tax is applied to domestic consumption of those resources that are important for the production of goods related to national security, then domestic consumption of such goods decreases and more resources will be available now for the production of national security goods. It is considered a better idea than having barriers because these barriers have two bad effects i.e., they increase the economic deadweight loss because of an increase in prices which leads to a decrease in consumer surplus more than an increase in producer surplus, and it also disturbs the relationship countries have with each other. The decrease in consumer surplus because of the application of tax is compensated by government tax earning.

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