The optimum tariff is the tariff rate that
A) saved the most domestic jobs
B) generates the largest tax revenue
C) maximizes domestic production
D) maximizes the net benefit from improving the improvement in the terms of trade relative to loss from the reduction in the volume of trade

Question

Quizplus · Accepted Answer

The optimum tariff is one that balances the benefits of an improvement in the terms of trade (higher prices for exported goods) with the costs of a reduction in the volume of trade (lower consumption of imported goods). Therefore, the best choice is D, which maximizes the net benefit from trade. A and B are incorrect because they focus solely on domestic objectives (saving jobs and generating revenue) and not on the overall welfare implications of the tariff. C is also incorrect because maximizing domestic production may not necessarily lead to optimal outcomes for consumers and overall economic welfare.

The Optimum Tariff Is the Tariff Rate That