A country's net welfare will increase when it imposes a tariff on a
Foreign monopolist if its:

Question

Quizplus · Accepted Answer

In this scenario, the foreign monopolist will increase the price of its product in response to the tariff, reducing the quantity demanded and leading to a decrease in consumer surplus. However, the terms-of-trade gain from the tariff may outweigh the loss in consumer surplus. If the tariff leads to a reduction in the price the domestic country pays for the goods that it exports to the foreign monopolist's country, this will increase the country's welfare. Therefore, if the terms-of-trade gain is greater than the lost consumer surplus, the net welfare of the country will increase. It is not relevant whether the increase in tariff revenues is greater or less than the terms-of-trade gain, as the goal is to increase net welfare.

A Country's Net Welfare Will Increase When It Imposes a Tariff