Question

One of the theoretical arguments advanced in favor of a tariff is based on theprinciple of market failures (eg a positiveexternality of production). Explain (in words and graphics) how a tariffimposedby a small country can, in this case, be "justified". Do a welfare analysis comparing the initial free trade situation and the situation with a tariff. Explain clearly your results. Thenexplainifthisargument is reallyconvincing. Is thetariffnecessarilythebestpolicy in thissituation, or is there a morerelevantalternativepolicy? Answerthislastpointbydoinganotherwelfareanalysiscomparingtheinitialfreetradewiththepolicyyouareconsidering. How doesyouranalysissuggestthatthispolicy is betterthanthetariff? USE MARGINAL EXTERNAL BENEFIT CURVE ANALYSIS.

Answer 1

tariff plays an important role in trading at international level. generally tariff is a kind of barrier or duty kind of tax imposed by government of importing country. also it affects the export and import.

here in this question it is said that tariff imposed by small countries is good as these small country can have a new source of income via tariff which will ultimately raise its income and helps in increasing its revenue because small and developing countries have a lot scope for development as compared to developed and big countries but as we know that their is flip side of every coin so is in the case of this tariff as too much tariff increase can lead to loss of income because the exporting country will hesitate to trade with in case of high tariff .

so tariff is not necessary in every situation .

answered by: anonymous