The imposition of an import tariff by a small nation:
A)increases the nation's welfare
B)reduces the nation's welfare
C)leaves the nation's welfare unchanged
D)any of the above is possible

Question

Quizplus · Accepted Answer

The imposition of an import tariff by a small nation reduces the nation's welfare. This is because the tariff raises the price of imported goods for consumers, leading to a decrease in the quantity of imports demanded. This, in turn, reduces competition in the domestic market, allowing domestic producers to raise their prices, resulting in a decrease in the quantity of goods demanded. As a result, tariff leads to a decrease in both consumer and producer surplus, reducing the overall welfare of the nation.

The Imposition of an Import Tariff by a Small Nation