Question

Alphaland and Betaland are identical small countries. Both have comparative advantage in Good X. Alphaland imposes an export tax on good X, and Betaland imposes an export quota. The size of the tariff and the quota are chosen to be equivalent. Now domestic demand for good X falls in both countries. How do the effects on the domestic price, production, consumption, and exports in Alphaland compare with those in Betaland? Explain carefully your results with illustrations.

Answer 1

When the domestic demand for good X falls in both countries. therefore, the domestic price will decrease of the decrease in the demand for good X, the supply of good X in domestic decrease as the price is low , producer is no benefit to supply good X in domestic . but the producer will continue to produce good X to export them in other countries and thus production does not decrease or in other words, production increase of good X in both countries while the consumption decrease and exports rise in both countries because of the decrease in demand in domestic and price also reducer, the exporter find incentive to export of the good X . therefore export of good X increases.