An optimal tariff is one which reduces imports to the level at which ____ equals ____?
Correct answer: D. social marginal cost, social marginal benefit
- A. imports, exports
- B. the balance of trade, zero
- C. The demand for currency the supply of currency
- D. social marginal cost, social marginal benefit
Explanation
An optimal tariff balances the gain from improved terms of trade against the domestic efficiency loss caused by the tariff. This occurs where the relevant social marginal benefit equals social marginal cost.
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