If a small nation increases the tariff on its import commodity:
A)the rent of domestic producers of the commodity increases
B)the protection cost of the tariff decreases
C)the deadweight loss decreases
D)all of the above

Question

Quizplus · Accepted Answer

Increasing the tariff on an import commodity increases the price of that commodity, making it more expensive for consumers to purchase. This creates an opportunity for domestic producers of the commodity to increase their prices and earn higher profits or rents. Therefore, the rent of domestic producers of the commodity increases. Choice B is incorrect because the cost of protection, which refers to the economic costs of implementing and maintaining protectionist policies, would likely increase with an increase in the tariff. Choice C is also incorrect because the deadweight loss, which refers to the loss of economic efficiency resulting from the tariff, would likely increase with an increase in the tariff.

If a Small Nation Increases the Tariff on Its Import