A tariff levied on a good produced in a small nation with an inelastic supply that maximizes the gain to a large nation is called a(n):
A) retaliatory tariff.
B) prime tariff.
C) inelastic tariff.
D) optimal tariff.

Question

Quizplus · Accepted Answer

An optimal tariff is a tariff that maximizes the gain to the large nation. If the small nation has an inelastic supply, then the optimal tariff would be even higher because the small nation would not be able to increase its supply in response to the tariff, allowing the large nation to generate greater gains. Therefore, the correct answer is D) optimal tariff.

A Tariff Levied on a Good Produced in a Small