Optimum Tariff

1
Optimum Tariff

• Derivations

2
Imports and Exports
Home Demand
Home Supply
Home Imports
Foreign Exports
Domestic and World Prices
3
loss
loss
gain
4
Tariff and Prices
--Home ImportsForeign Exports
Pre-tariff world price and post tariff home price
Post tariff world price
5
The tariff and domestic welfare
6
Gain-LosstU-t2V
Where U and V are positive expressions independent
of the level of tariff, t.
If t is small enough the first term exceeds the
second term. Conclusion the optimum tariff is
positive!