Question

If the reason for imposing tariffs is to collect government revenue, what would be the better...

If the reason for imposing tariffs is to collect government revenue, what would be the better policy in that case? Show this graphically.

Homework Answers

Answer #1

If the reason for imposing tariffs is to collect government revenue, then what happens when it will increase the price which might not be motivating for the domestic industries to take back as the price with tariff would still be below the domestic price as shown in the figure so that imports will still continue but fetches a large amount of government tariff revenue and this is shown in the figure below.

Good policy is to increase the tariff such a way that it doesn't reach the domestic price but slightly less so that tariff revenue can be maximised

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