Explain, using an appropriate graph, why a tariff is an inefficient means to collect government revenue.

Explain, using an appropriate graph, why a tariff is an inefficient means to collect government revenue.

Expert Solution

Below is a description of a tariff imposed on a small country. World price is P1 and tariff is P1P2. This implies that after tariff, the price is P2. Government is able to collect tariff on imports which are now reduced to Q2Q3. This implies that tariff revenue is area C. There are distributive losses measured by areas D and E. This shows that tariff is an inefficient means to collect revenue because it results in inefficiency losses.

Rahul Sunny answered 7 months ago

Question

Explain, using an appropriate graph, why a tariff is an inefficient means to collect government revenue.

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Expert Solution

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