If a "small" 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 is less than the monetary value of the terms-of-trade effect.

Question

Quizplus · Accepted Answer

A small country's overall welfare from a tariff typically decreases because it does not have the market power to affect world prices, meaning the terms-of-trade effect is negligible or non-existent. The welfare loss from the consumption and protective effects usually outweighs any benefits.

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