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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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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