In a large-country case, an optimal tariff would be one:

Question

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An optimal tariff in a large-country case would be one in which the terms-of-trade gain (the increase in the price of exported goods relative to imported goods) exceeds the deadweight loss (the inefficiencies caused by the reduction in trade). This is because in a large country, the country's tariff policy can affect world prices, leading to a terms-of-trade gain if the domestic price increase is larger than the reduction in quantity demanded due to the tariff. However, if the deadweight loss is greater than the terms-of-trade gain, the net welfare of the country would decrease with the implementation of the tariff. The other choices (A, B, and D) are not necessarily indicative of an optimal tariff in a large-country case.

In a Large-Country Case, an Optimal Tariff Would Be One