How does a tariff imposed by a large country differ from a tariff imposed by a small country?
A) If a large nation imposes a tariff, that government gets more revenue.
B) It may not have any effect at all in the large country, since its consumers have so many other choices.
C) Because of its size, the large nation's tariff not only decreases the quantity demanded of the product but may also reduce the world price of the good.
D) The large nation can just buy up foreign producers if the foreign producers don't like having a tariff imposed.

Question

Quizplus · Accepted Answer

A small country's tariff will have a negligible effect on the world price of the good, whereas a large country's tariff can decrease the quantity demanded of the product and reduce the world price of the good since it has a bigger influence on the global market. Option A may be true but is not exclusive to large countries as small countries can also generate revenue from tariffs. Option B is not entirely correct as there might still be an effect on the domestic market, and option D is not a reasonable solution as it involves violating international property rights.

How Does a Tariff Imposed by a Large Country Differ