In the large nation, they would have the power that could affect the world prices of commodities. In other word, the tariff that imposed by large nations partly falls into consumers and the rests fall into exporters. The tax revenue that collected from exporters is called terms of trade effects, on the other hand, the effect of production and consumption distortion in the countries is the protection cost to economy. When the large nation increase tariff, there would be the increase of term of trade which larger than the increase of negative effect of reduction in value of trade.
Optimum tariff is the tariff rate that maximize the term of trade of the nation, on the other hand the prohibitive tariff is the rate where there are on trade existing because trade partner’s welfare decreased. So, optimum tariff is socially optimal because the large nation are better off with trade than without trade.
In the large nation, they would have the power that could affect the world prices of commodities. In other word, the tariff that imposed by large nations partly falls into consumers and the rests fall into exporters. The tax revenue that collected from exporters is called terms of trade effects, on the other hand, the effect of production and consumption distortion in the countries is the protection cost to economy. When the large nation increase tariff, there would be the increase of term of trade which larger than the increase of negative effect of reduction in value of trade.
Optimum tariff is the tariff rate that maximize the term of trade of the nation, on the other hand the prohibitive tariff is the rate where there are on trade existing because trade partner’s welfare decreased. So, optimum tariff is socially optimal because the large nation are better off with trade than without trade.
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