Chapter 26: Problem 905

Whether imposed for protective purposes or to raise revenue, tariffs can be imposed in two different ways. Define these two methods of imposing tariffs, and give an example of each.

Short Answer

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Tariffs can be imposed in two ways: specific tariffs and ad valorem tariffs. Specific tariffs are taxes imposed on imported goods based on a fixed amount per unit, such as weight, volume, or quantity. For example, a country might impose a specific tariff of $5 per kilogram on imported apples. Ad valorem tariffs are taxes imposed on imported goods based on a percentage of the value of the goods. For example, a country might impose an ad valorem tariff of 15% on imported cars, in which case a car worth $25,000 would have a tariff of $3,750 applied.

Step by step solution

Introduction to Tariffs

Tariffs are taxes imposed on imported goods and services. They can be implemented for two main reasons: protecting domestic industries or raising revenue for the government. Tariffs can be imposed in two ways: specific tariffs and ad valorem tariffs. We will now explain each method in detail and provide examples.

Specific Tariffs

Specific tariffs are taxes imposed on imported goods based on a fixed amount per unit, such as weight, volume, or quantity. This means that a specific amount of tax is applied per unit of the imported good, regardless of the value of these goods. Example: A country decides to impose a specific tariff of $5 per kilogram on imported apples. This means that for every kilogram of apples imported, $5 will be paid as a tariff to the government.

Ad Valorem Tariffs

Ad valorem tariffs are taxes imposed on imported goods based on a percentage of the value of the goods. This means that the tax charged depends on the monetary value of the imported goods, rather than being a fixed amount per unit. Example: A country decides to impose an ad valorem tariff of 15% on imported cars. If a car worth $25,000 is imported, the tariff applied would be 15% of $25,000, which is $3,750.

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Whether imposed for protective purposes or to raise revenue, tariffs can be imposed in two different ways. Define these two methods of imposing tariffs, and give an example of each.

Short Answer

Step by step solution

Introduction to Tariffs

Specific Tariffs

Ad Valorem Tariffs

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