Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

 
13.5 SUMMARY 
 
1. A tariff is simply a tax or duty placed on an imported good by a 
domestic government. Tariffs are usually levied as a percentage of 
the declared value of the good. 
2. There are three standard situations in which governments often 
impose tariffs. First is to protect fledgling domestic industries from 
foreign competition. Secondly is to protect aging and inefficient 
domestic industries from foreign competition. Finally is to protect 
domestic producers from dumping by foreign companies or 
governments. 
3. A country that is a large importer is said to have monopsony 
power in trade . A monopsonist can gain an advantage for itself by 
reducing its demand for a product in order to induce a reduction in 
price. 

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4. In a small country case, the price of the import good in the 
importing country will rise by the amount of the tariff.
5. Whenever a large country implements a small tariff, it will raise 
national welfare. If the tariff is too high, national welfare will fall and 
there will be a positive optimal tariff that will maximize national 
welfare. 
6. The importer‘s tariff must result in a reduction in national welfare 
for the exporting country. The world welfare effect of the import 
tariff is negative. It result in a reduction in world production and 
consumption efficiency. 
7. Whenever a small country implements a tariff, national welfare 
falls. The higher the tariff is set, the larger will be the loss in 
national welfare. The tariff causes a redistribution of income. 
Producers and the recipients of government spending gain, while 
consumers lose. 
8.
Free Trade refers to the Trade between countries without any restriction or 
discrimination. In more precise words, Free Trade is the restrictionless trade among the 
nations. Thus in a free trade no differentiation is made between the national or foreign 
industries. No policy exists to favour the national industries and shock the foreign 
industries. 
9. The meaning of the term 'protection' refers to a set of policies framed to encourage the 
home, industries, it is the protection of the home on industries so that they may prosper 
rapidly. 
10.The theory of Protection is far better than the theory of Free Trade; especially where 
we come to the practical points of view. Protectionism is the only principle for the poor and 
developing countries including India.