Suppose the Government Is Attempting to Discourage Consumption of Two

question 137

Essay

Suppose the government is attempting to discourage consumption of two goods: Good X and Good Y. Good X has a very elastic demand and Good Y has a very inelastic demand. The government plans to implement a tax on the suppliers of both goods. If the elasticity of supply for both goods is perfectly elastic, which tax will be more effective at reducing consumption and why?

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Definitions:

Quota

A government-imposed trade restriction that limits the quantity or monetary value of goods that can be imported or exported during a specific time frame.

Domestic Producers

Companies or individuals that manufacture or produce goods within their own country, as opposed to importing them from abroad.

NAFTA

The North American Free Trade Agreement, a treaty between Canada, Mexico, and the United States that removed tariffs and facilitated trade between the member countries.

Mexico

A country located in the southern portion of North America, known for its rich cultural history, diverse landscapes, and robust economy.