In the context of trade policy, the 'Optimal Tariff' argument suggests that:
A. Only small countries can benefit from tariffs
B. A large country may improve its terms of trade by imposing a tariff, provided foreign retaliation is absent
C. Free trade is never optimal
D. Tariffs are always welfare-reducing for the imposing country
Answer: Option B
Solution (By JKSSB Mock Tests)
A large country can improve its terms of trade by restricting imports, thereby extracting some monopoly or monopsony rent; the optimal tariff balances this gain against the efficiency loss.
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