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Optimum tariff


A tariff which maximizes a country’s welfare, trading off improvement in the terms of trade against restriction of trade quantities. For a small economy which cannot affect world prices in the markets in which it trades, the optimum tariff is zero. For a country with monopoly power in its export markets or monopsony power in import markets, the optimum tariff is positive, but not so large as to eliminate trade entirely.

Reference: Oxford Press Dictonary of Economics, 5th edt.