The Terms of Trade or Optimal Tariff Arguments

One valid argument for imposing tariff that doing so will shift the terms of trade in a country’s favor and against foreign countries. The phrase In as of track refers. to the ratio of expend prices to import prices. The idea is that when .a large country levies tariffs on its imports, the reduced demand for the good in world markets the equilibrium price and thereby reduce the per-tariff cost . of the good .to the country ..Such a change will improvement the country’s terms of trade and increase domestic real income. The set’ of tariffs that maximizes domestic real income is called the optimal tariff.

Ultimately, Such a situation would surely not rt.’present an improvement of either world Of individual economic welfare. When all countries impose optimal tariff is likely that everyone economic welfare to free trade become all are likely to benefit if all countries abolish trade barriers.