I Is a Country a Small or Large Country If

question 121

Essay

I. Is a country a small or large country if it faces a perfectly price elastic foreign export supply curve?
II. What is the optimal tariff for a country facing a perfectly price elastic foreign export supply curve?
III. If the foreign export supply is less than perfectly price elastic, will the optimal tariff increase or decrease as the price elasticity of demand increases?
IV. What happens to the country's welfare if it applies a tariff higher than the optimal tariff?

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Definitions:

Crowding-Out Effect

The phenomenon where increased government spending leads to a reduction in private sector spending, often due to higher interest rates.

Government Spending

Refers to the total expenditure incurred by the government on various goods, services, and projects to fulfill its economic and social objectives.

National Income

The total income earned by a country's people and businesses, including wages, profits, and rent, over a specific period.

Crowding-Out Effect

The phenomenon where increased government spending leads to a reduction in private sector spending and investment, due to higher interest rates or other factors.