Question

What is meant by the optimum tariff? What is its relationship to changes in the nation’s terms of trade and volume of trade?

Answer 1

The optimal trade tariff theory discussedb by economist refer to countries typically large ,powerful, importer of good using tariff as the means to controlthe global price of these goods .Large price has the power over pricing.

Instead of only seller or largest seller of certain good these countries function as the largest buyer of good giving them the power to influence global price through tariff.

Monopsony power result in a supply that is relatively inelastic or insensitive to change price which forces exporters to lower their pre tariff prices when facing a tariff increase in order to maintain the same supply level and importing countries to capture revenue that exporters previously receive . A tariff reduction does not yielded increase in import prices but domestic price has dropped until they reached the same level as import price , passing benefit of the reduction entirely to domestic consumers