Suppose, two trading partners simultaneous implement an optimal tariff due to trade wars then A. Both countries' welfare will increase B. domestic producer surplus will be maximized C. One country benefits at the expense of the other D. a sub-optimal outcome will result E. government revenue increases

Optimal tariffs Robert Torrens was the initial person to recognize the potential for a tariff to…

Answered: Suppose, two trading partners…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose, two trading partners simultaneous implement an optimal tariff due to trade wars then

A. Both countries' welfare will increase
B. domestic producer surplus will be maximized
C. One country benefits at the expense of the other
D. a sub-optimal outcome will result
E. government revenue increases

Expert Solution

Step 1

Optimal tariffs

Robert Torrens was the initial person to recognize the potential for a tariff to enhance national welfare for something like a big country in foreign markets.
The term "balance of trade arguments for protection" refers to the fact that welfare improvement can only occur if the terms of commerce gain outweigh the entire deadweight losses. In a number of fully competitive models,
economists have examined the circumstances in which tariffs will increase welfare. The overall findings of that analysis are described in this section.

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