An import tariff reduces the welfare of a "small" country by an amount equal to the redistribution effect plus the revenue effect.

Question

Quizplus · Accepted Answer

An import tariff reduces the welfare of a "small" country by an amount equal to the sum of the deadweight losses from the consumption distortion and the production distortion, not the redistribution effect plus the revenue effect. The revenue effect actually represents a transfer from consumers to the government and does not reduce national welfare by itself.

An Import Tariff Reduces the Welfare of a "Small" Country