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Show that a per unit consumption tax ($T) and a per unit production subsidy ($T) to...

Show that a per unit consumption tax ($T) and a per unit production subsidy ($T) to domestic producers have the same effect as the tariff policy.

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Answer #1

CONSUMPTION TAX IS A TAX WHERE THE GOVERNMENT CHARGES A PERCENTAGE ON THE PER UNIT VALUE OF THE PRODUCT WHILE PRODUCT SUBSIDY IS A REBATE GIVEN ON THE PRODUCTION OF THE GOOD BOTH WOULD HAVE A NOMINAL EFFECT ON THE TARIFF POLICY SINCE A TARIFF ON GOODS IS A TAX IMPOSED ON THE IMPORTS AND EXPORTS , BUT HERE THE DOMESTIC PRODUCERS HAVING A BENEFIT OF SUBSIDY THERE COST WOULD BE REDUCED BUT THE CONSUMPTION TAX IS BEING CHARGED ON THE OTHER HAND TO BALANCE IT.

END CONCLUSION IS IT SHOWS A NOMINAL EFFECT ON THE IMPORTS AND EXPORTS OF GOODS IN THE TARIFF MARKET.

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