Assume a small open economy where goods X and Y are produced, and where the country has a comparative advantage in exporting good Y.

(i) Using the appropriate diagram, show that an ad valorem import tariff on good X will reduce the volume of trade, economic welfare, and national income of the country.

(ii) Assuming the tariff revenue is returned to consumers, explain why trade balances in this model.

(iii) Under what circumstances will an import quota generate equivalent trade and welfare effects to an import tariff? What impact would rent-seeking behavior have on equivalence?

(iv) If a voluntary export restraint (VER) leads to the same level of imports of X as under the tariff, would it have the same effect on economic welfare and national income?