ABSTRACT
Depending upon the perspective of the theorist, the theory of tariffs is concerned with the effects of the introduction of tariffs on either the behaviour or potential welfare of the community in circumstances. A crucial first step in the theory of tariffs, therefore, is to determine the effect of the tariff on the offer curve of the tariff-imposing country. The impact of a tariff on the offer curve of the tariff-imposing country in the disaggregative case is developed first. The exact nature of the displacement is determined by the rate of the tariff and the way in which expenditure of the tariff proceeds by their recipients is divided between exportables and importables. The tariff revenue also can be assumed to be redistributed by the government to the community in general. The tariff rate that maximizes potential welfare is known as the optimum tariff, defined by the tangency of a trade indifference curve with the foreign offer curve.
