If a country an imposes an import tariff, its welfare can improve if ?
Correct answer: B. its terms of trade improve enough
- A. the country is a small country rather than a larger country
- B. its terms of trade improve enough
- C. The tariff enhances the welfare of its trading partners
- D. Its government's tax revenue increases because of the tariff
Explanation
For a large country, an import tariff may lower the foreign export price and improve its terms of trade. National welfare rises only if that gain is large enough to offset production and consumption distortions.
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