ABSTRACT
To evaluate the effect of a tariff on potential welfare, economists must first derive the cum-tariff consumption-possibilities frontier. The analysis can be used to determine the minimum rate at which the tariff becomes prohibitive. From the point of view of long-run equilibrium analysis, it is immaterial whether a tax is imposed on exports or imports: the outcome will be identical. The analysis of the tariff can be applied step by step to the case of the export tax. It does not matter which money price is taxed, because one good is exchanged for another in trade, and hence there is only one relative price. Consider the case of a small country whose buying and selling in the international market does not have any appreciable effect on international prices. The imported commodity becomes relatively more expensive in the domestic market, as shown by equation.
