Economists suggest that an optimum tariff would be one which reduce imports to a point where___________?
Correct answer: D. marginal social cost equals marginal social benefit
- A. Comparative advantage is achieved
- B. Price elasticity of imports is unity and tariff revenue is maximized
- C. import prices are the same as export prices
- D. marginal social cost equals marginal social benefit
Explanation
An optimum tariff balances the gain from improving the country’s terms of trade against the domestic distortion caused by restricting imports. The welfare-maximizing point is where marginal social benefit equals marginal social cost, not where tariff revenue alone is maximized.
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