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 tariff can increase domestic welfare if the terms-of-trade gain (from improved export prices) exceeds the protective effect (cost of inefficient domestic production) and the consumption effect (loss from reduced consumption).

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