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Consider a situation where the Terms of Trade Effects Tariff Model holds for a country that...

Consider a situation where the Terms of Trade Effects Tariff Model holds for a country that imports Commodity A. Initially, the country has trade without tariffs on Commodity A. It then changes its policy and imposes a tariff on Commodity A, while continuing to allow trade in A. Answer the following assuming there is no foreign retaliation.

(a) What happens to Total Surplus for the country? Why?

(b) What happens to Total Surplus for foreign exporting countries of Commodity A that have the tariff imposed on them? Why?

(c) What happens to Total Surplus for the world? Why?

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Answer #1

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