For a small country, which outcome is common to a tariff, an import quota and an export subsidy?
Show the answer and explanation
Answer: C. A net welfare loss for the country
A small country cannot change world prices, so each of these measures just pulls the domestic price away from the world price. That leads to the wrong amounts being produced and consumed. Idea: Net welfare effect = Gains to winners - Losses to losers, and here it is negative: this is the deadweight loss. A tariff transfers money from consumers to producers and the government but also wastes resources on high-cost production. The tools differ in who gets the transfer, not in whether value is destroyed.
Why the other options are wrong:
A. Government revenue is raised - Only a tariff raises revenue. A quota's rent goes to licence holders and an export subsidy costs the government money.
B. Imports are eliminated entirely - Each measure changes trade by some amount; none is designed to stop it completely.