Question

Under what conditions may a tariff actually make a country better off?

Answer 1

Tariffs are a tax imposed on import. Tariffs are an important barrier to free trade. It protects domestic industry from cheap import.

Suppose tariff is (P2-P1). it increases producer surplus by the area 1, the government gets revenue is the area of 3, consumer surplus fall by the area (1+2+3+4). Social welfare loss is the area of (2+4).

So when tariff revenue>social welfare loss, then tariff can make a country better off.