Explain, Using Offer Curves, How a Tariff Affects a Large

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The Answer is In the context of general equilibrium, a tariff affects a large country by shifting its offer curve outward. An offer curve represents the various combinations of goods that a country is willing to trade at different terms of trade. When a tariff is imposed, the price of imported goods increases, leading to a decrease in the quantity of imports and an increase in the quantity of domestic production. This results in a shift of the offer curve outward, indicating that the country is willing to trade more goods at each terms of trade.

If both sets of offer curves are elastic in the relevant ranges, a tariff can potentially improve the welfare in the tariff-imposing country. When offer curves are elastic, it means that the quantity of goods that a country is willing to trade is responsive to changes in price. In this case, when a tariff is imposed and the offer curve shifts outward, the increase in domestic production and decrease in imports can lead to an overall increase in welfare for the country. This is because the country is able to produce more of the goods it consumes, leading to a higher level of consumer surplus.

However, it's important to note that the overall welfare effects of a tariff also depend on various other factors such as the elasticity of demand for imports, the impact on domestic industries, and potential retaliation from trading partners. Additionally, while a tariff may improve welfare in the short run, it can also lead to inefficiencies and deadweight loss in the long run. Therefore, the decision to impose a tariff should be carefully considered in the context of general equilibrium and the specific characteristics of the economy.

Explain, Using Offer Curves, How a Tariff Affects a Large

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