Question

Which of the following statements are correct for the effect of an import tariff on a small nation?

Select one or more:

a. In general, an import tariff reduces the national welfare of a small importing nation because the gain in producer surplus is smaller than the loss in consumer surplus.

b. The import tariff raises government revenue.

c. In general, an import tariff increases the national welfare of the small importing nation because the tariff raises the government revenue.

d. The import tariff increases producer surplus by raising the market price and allowing more production.

e. An import tariff improves efficiency in the economy overall because it saves high-paying jobs.

f. In general, an import tariff increases the national welfare of the small importing nation because the gain in producer surplus is larger than the loss in consumer surplus.

g. The import tariff reduces consumer surplus by raising the market price.

Answer 1

An import tariff in a small country increases producer surplus because the producers are now able to produce and sell at a higher price.

It reduces consumer surplus because the consumers need to pay a higher price which includes tariff . So consumers are worse off.

The government revenue increases due to tariff but the national welfare decreases because the gain in producer surplus and government revenue is less than the loss in consumer surplus.

A tariff on imports in small countries always reduces economic well being of the small country.

So option A, B,D,and G are the answers.

(You can comment for doubts)