If a "large" country levies a tariff on an imported good, its overall welfare increases if the monetary value of the tariff's consumption effect plus protective effect exceeds the monetary value of the terms-of-trade effect.

Question

Quizplus · Accepted Answer

The overall welfare of a country imposing a tariff is determined by the sum of the consumption effect, the protective effect, and the terms-of-trade effect, but it also includes the revenue effect. Simply having the consumption effect plus protective effect exceed the terms-of-trade effect does not guarantee an increase in overall welfare, as the negative impacts on consumers and potential inefficiencies in production must also be considered.

If a "Large" Country Levies a Tariff on an Imported