Final answer:
When a tariff is imposed in a small country, it raises prices and decreases consumer surplus while increasing producer surplus. However, the overall welfare of the country may be reduced due to the inefficiency and economic distortion caused by the tariff.
Step-by-step explanation:
The welfare effects of a tariff in a small country can be analyzed by considering its impact on prices, quantities, and consumer and producer surplus. When a tariff is imposed, it raises the price of the imported goods, which leads to a decrease in the quantity demanded by domestic consumers. This can result in a decrease in consumer surplus. On the other hand, domestic producers benefit from the tariff as it increases the price of their goods, leading to an increase in producer surplus. However, the overall welfare of the country may be reduced due to the inefficiency and economic distortion caused by the tariff.