Question

using welfare analysis show the effects of a tariff placed on a good imported into a small country

Answer 1

With Free trade the price is PFT where quantity supplied is SFT and quantity demanded is DFT

and with the tariff,the price increases to PWT where quantity supplied is SWT and quantity demanded is DWT

In this case the loss to the welfare are as follows:

CS = lost by the area A+B+C+D so they are worse off after the tariff is introduced

PS= gains the area A so they are better off as the tariff increases the price of their goods

Government revenue = area C government gets the revenue by imposing tariff which they spend on welfare programs

Net Welfare loss = B+D which is also the deadweight loss so the small importing country loses by teh tariff as the deadweight loss which contains consumption efficiency loss and production efficiency loss.Therefore the net welfare is negative due to the tariff imposed by a small country.