Under Free Trade, a Large Country Produces 1 Million Leather

Multiple Choice

Under free trade, a large country produces 1 million leather bags per year and imports another 2 million bags per year at the world price of $60 per bag. Assume that 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 tariff increases domestic production.
B) the country loses national well-being because the tariff hurts the domestic consumers.
C) the country loses national well-being because the government revenue from tariff is insufficient to compensate for the losses arising from the production and consumption effects.
D) the country gains national well-being because the amount of the tariff revenue paid by the exporters more than offsets the consumption and the production effects.