Question

UW ON à diagram. ints) Discuss the welfare effects of a tariffs for a small and large country

Answer 1

Answer : Welfare effect of tariff on small country is entirely different from a tariff of large country as follows :

Small country:

• When a specific tariff had been implemented by a small country than it will raise the domestic price by the full value of the tariff.
• Whenever small country implemented tariff than national welfare of the country falls.
• The higher the tariff is set , larger will be loss of national welfare.
• The tariff cause a redistribution of income and producer as well as government revenue gained from a tariff where as other lost a lot.
• National welfare decrease.

Large country :

• When a large country implements a small tariff than there will raise national welfare.
• If tariff is set too high , than national welfare will loss.
• The country will reach at positive optiumal tariff which will maximize the national welfare.
• The welfare of the country has been increased drastically.
• As specific tariff increase the values of the national welfare.