Under free trade, a large country produces one million leather bags per year and imports another two million bags per year at the world price of $60 per bag. Assume the country imposes a specific tariff of $5 per bag. As a result, the per-unit price of leather bags decreases to $58 in the international market and the import of leather bags drops to 1.6 million. The domestic production, on the other hand, increases to 1.1 million. As a result of the tariff being imposed
A. the country gains national well-being because the amount of the tariff revenue effectively paid by the exporters more than offsets the consumption and the production effects.
B. the country loses national well-being because the government revenue from the tariff is insufficient to compensate for the losses arising from the production and consumption effects.
C. the country gains national well-being because the tariff increases domestic production.
D. the country loses national well-being because the tariff hurts the domestic consumers.
Answer: A
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