Editing Tariff (section)

=== Optimal tariff ===
For [[economic efficiency]], ''[[free trade]]'' is often the best policy, however levying a tariff is sometimes [[Theory of the second best|''second best'']].

A tariff is called an '''optimal tariff''' if it is set to maximise the welfare of the country imposing the tariff.{{sfnp|El-Agraa|1984|p=26}} It is a tariff derived by the [[tangent|intersection]] between the ''trade [[indifference curve]]'' of that country and the '''[[offer curve]]''' of another country. In this case, the welfare of the other country grows worse simultaneously, thus the policy is a kind of ''[[beggar thy neighbor]] policy''. If the offer curve of the other country is a [[line (geometry)|line]] through the origin point, the original country is in the ''condition of a small country'', so any tariff worsens the welfare of the original country.<ref>Almost all real-life examples may be in this case.</ref>{{sfnp|El-Agraa|1984|loc=Chap.2 保護：全般的な背景|pages=8–35 (in 8–45 by the Japanese ed.)}}

It is possible to levy a tariff as a political [[public choice|policy choice]], and to consider a theoretical optimum tariff rate.{{sfnp|El-Agraa|1984|loc=Chap. 5 ｢雇用&minus;関税｣命題の政治経済学的評価|page =76 (by the Japanese ed.)}} However, imposing an optimal tariff will often lead to the foreign country increasing their tariffs as well, leading to a loss of welfare in both countries. When countries impose tariffs on each other, they will reach a position off the [[contract curve]], meaning that both countries' welfare could be increased by reducing tariffs.{{sfnp|El-Agraa|1984|loc=Chap. 6 最適関税、報復および国際協力|page=93 (in 83–94 by the Japanese ed.)}}