What is a difference between a tariff imposed by a large country and a tariff imposed by a small country?
A) A tariff imposed by a large country has no deadweight consumption and production losses.
B) A tariff imposed by a large country has a terms-of-trade effect.
C) A tariff imposed by a small country has a terms-of-trade effect.
D) A tariff imposed by a large country has no deadweight consumption loss.

Question

Quizplus · Accepted Answer

A tariff imposed by a large country has a terms-of-trade effect because it can influence world prices by reducing its demand for imports and increasing its supply of exports. In contrast, a small country has little market power and cannot affect world prices. Therefore, a tariff imposed by a small country may only result in deadweight consumption and production losses without any positive terms-of-trade effect. Option A and D are incorrect because both large and small countries can experience deadweight consumption losses due to tariffs.

What Is a Difference Between a Tariff Imposed by a Large