In a large-country case, an optimal tariff is one for which the terms-of-trade gain exceeds the:
A) producer surplus.
B) increased price of the product imported.
C) deadweight loss.
D) consumer surplus.

Question

Quizplus · Accepted Answer

In a large-country case, an optimal tariff is one where the terms-of-trade gain exceeds the deadweight loss. This means the country can improve its welfare by imposing a tariff, despite the inefficiencies (deadweight loss) that tariffs typically introduce, because it can influence the world price of the good due to its large share in the market.

In a Large-Country Case, an Optimal Tariff Is One for Which