A defining characteristic of a "large nation" relative to a "small nation" with respect to identifying the welfare effects of a tariff is that the:
A)large nation is sufficiently powerful to influence the world market price of the imported commodity
B)large nation has a higher per capita income than the small nation
C)large nation is a monopsonist in the market for the imported commodity
D)large nation has a higher marginal rate of substitution for the imported commodity than the small nation

Question

Quizplus · Accepted Answer

A large nation has more influence on the world market than a small nation, and can therefore affect the world price of the imported commodity through the imposition of a tariff. This, in turn, affects the welfare effects of the tariff on both the large and small nation. Therefore, option A is correct. B, C, and D are incorrect as they are not defining characteristics of a large nation relative to a small nation with respect to identifying the welfare effects of a tariff.

A Defining Characteristic of a "Large Nation" Relative to a "Small