How might an export tariff in a large country improve the country's economic welfare?
A) The export tariff will always improve the country's welfare, since there are no deadweight consumption and production losses.
B) The export tariff will improve the country's welfare if terms of trade gains are larger than deadweight consumption and production losses.
C) The export tariff will never improve the country's welfare, since deadweight consumption and production losses always outweigh terms of trade gains.
D) The export tariff will improve the country's welfare if deadweight consumption and production losses are greater than terms of trade gains.

Question

Quizplus · Accepted Answer

An export tariff can improve a country's economic welfare if the gains from terms of trade outweigh the losses from deadweight consumption and production. This is because, with the tariff, the country reduces its exports, leading to an increase in the price of exported goods, resulting in a positive effect on the terms of trade. However, the tariff may also lead to decreased consumption and production, and these losses may outweigh the terms of trade gains. Therefore, option B is the correct answer.

How Might an Export Tariff in a Large Country Improve