Answer to Question #283307 in Macroeconomics for Comfort

Question

QUESTION ONE

Use a well labelled graph to briefly illustrate the effect of an import tariff imposed by a large country.

Hint: show how various economic agents gain or lose.[15 marks]

Answer 1

When a large country imposes an import tariff, national wellbeing may rise or fall. When an importing country imposes an import tariff, the exporting country's national welfare suffers. Any import tariff, no matter how small, will impair global production and consumption efficiency, lowering global wellbeing.