Figure 8.5 page 158 A large country imposes a small tariff Large country can have monopsony power, and realize a terms of trade effect. Home is e-(b+d). There is country’s gain arguably a maximum level, whose size depends on of foreigners’ elasticities Supply and demand [inverse of elasticity of foreign offer curve] (book derives formula in appendix). welfare as a whole. This worsens world’s Other versions of be optimal “optimal tariff”: prohibitive (cannot in our sense); maximize gov’t revenue. Note that this can be applied to export taxes--OPEC Worry about Retaliation Optimal tariff is an example of of extended “theory second best” – in chapter 10.: suppose that several conditions need to attain for an optimum. If it is not possible to attain one of them, then the “for may not be optimal to attain any of them. (restricted second best” it optimum). Standing on a mountainside. Figure 8.6 page 159 Nationally optimal tariff. Rest of world loses e+f, so world loses b+d+f. Figure C.1 p. 672 (Appendix C) Derivation of Offer Curve Offer curves: Origin is different: prices etc. of imported product. “cup” toward axis Farther out you are, better off you are
Figure 8.5 page 158 A large country imposes a small tariff Large country can have monopsony power, and realize a terms of trade effect. Home country’s gain is e-(b+d). There is arguably a maximum level, whose size depends on foreigners’ elasticities of Supply and demand [inverse of elasticity of foreign offer curve] (book derives formula in appendix). This worsens world’s welfare as a whole. Other versions of “optimal tariff”: prohibitive (cannot be optimal in our sense); maximize gov’t revenue. Note that this can be applied to export taxes--OPEC Worry about Retaliation Optimal tariff is an example of “theory of second best” – extended in chapter 10.: suppose that several conditions need to attain for an optimum. If it is not possible to attain one of them, then “for the second best” it may not be optimal to attain any of them. (restricted optimum). Standing on a mountainside. Figure 8.6 page 159 Nationally optimal tariff. Rest of world loses e+f, so world loses b+d+f. Figure C.1 p. 672 (Appendix C) Derivation of Offer Curve Offer curves: Origin is different: prices etc. “cup” toward axis of imported product. Farther out you are, better off you are
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