Should the home country be "large" relative to the world, its imposition of a tariff on imports would lead to an increase in domestic welfare if the terms-of-trade effect exceeds the sum of the
A) revenue effect plus redistribution effect.
B) protective effect plus revenue effect.
C) consumption effect plus redistribution effect.
D) protective effect plus consumption effect.

Question

Quizplus · Accepted Answer

A large country's imposition of a tariff can improve domestic welfare if the terms-of-trade gain (from improved export prices or reduced import prices) outweighs the protective effect (costs of inefficient domestic production) and the consumption effect (loss of consumer surplus).

Should the Home Country Be "Large" Relative to the World