The diagram shows export tax by a large country in perfect competition. The grap
ID: 1141825 • Letter: T
Question
The diagram shows export tax by a large country in perfect competition. The graph shows the effect of export tax by a large country under perfect competition. The graph shows price on the vertical axis and output on the horizontal axis. It has three curves: 1) a downward sloping world demand curve labeled "D° +DW ". 2) a downward sloping domestic demand curve labeled "Dd that starts at the same point on the vertical axis as the world demand curve but has a steeper slope than the world demand curve. 3) an upward sloping supply curve (Supply). At the point where the supply curve and the world demand curve intersect, price equals $9 (the free-trade price) and the quantity supplied equals 30. The new international price under export tax, PW2, equals $12. The price that consumers pay under export tax equals, Pw2 - t, equals $7. When price is $9, the quantity supplied equals 30 and the quantity demanded domestically equals 10. When price is $7, the supplied equals 25 and the quantity domestically demanded equals 15 Price P"-$9 10 15 Based on the diagram, the change in national welfare due to the export tax is 1) positive 2) negative 3) zeroExplanation / Answer
Ans. Based on the information given in the question and in a graph, the change in national welfare due to export tax is positive. So the correct answer is A.