Describe a specific tariff, an ad valorem tariff, and a compound tariff. What are the advantages and disadvantages of each?

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Describe a specific tariff, an ad valorem tariff, and a compound tariff. What are the advantages and disadvantages of each?

Describe a specific tariff, an ad valorem tariff, and a compound tariff. What are the advantages and disadvantages of each?

 

Answer & Explanation (2)

Explanation

A specific tariff is a fixed amount of money that is imposed on per unit sale of goods to other countries. For example a Country A has to pay $100 for every unit imported of a particular good. Its advantage is that it is easy to implement and it protects the producers of the domestic economy even during the recession by making imported goods relatively more expensive than domestic goods. However, its disadvantage is that it does not discourage the consumption of imported goods.
 
Ad valorem tax is imposed as a fixed percentage of the value of the product. For example Country A would pay 10% of the value of the products imported as tax. Its advantage is that it ensures a constant degree of protection for the domestic producers. However, its disadvantage is that it depends on the import value which cannot be determined every time with ease.
 
A combination of both specific and ad valorem tariffs is known as compound tariff. In this a fixed amount is charged over and above the percentage charge. It does not have any disadvantage.

Verified Answer

Specific tariff is a fixed amount of money charged per unit of imported goods. It is easy to apply but it does not discourage the import consumption.
Ad valorem tariff is charged as a fixed percentage of an imported product's value. It maintains a constant degree of protection but sometimes it becomes difficult to determine the value of tax.
A combination of specific and ad valorem tariffs is called compound tariff. It does not have any disadvantage.

Explanation

A specific tariff is a fixed amount of money that is imposed on per unit sale of goods to other countries. For example a Country A has to pay $100 for every unit imported of a particular good. Its advantage is that it is easy to implement and it protects the producers of the domestic economy even during the recession by making imported goods relatively more expensive than domestic goods. However, its disadvantage is that it does not discourage the consumption of imported goods.
 
Ad valorem tax is imposed as a fixed percentage of the value of the product. For example Country A would pay 10% of the value of the products imported as tax. Its advantage is that it ensures a constant degree of protection for the domestic producers. However, its disadvantage is that it depends on the import value which cannot be determined every time with ease.
 
A combination of both specific and ad valorem tariffs is known as compound tariff. In this a fixed amount is charged over and above the percentage charge. It does not have any disadvantage.

Verified Answer

Specific tariff is a fixed amount of money charged per unit of imported goods. It is easy to apply but it does not discourage the import consumption.
Ad valorem tariff is charged as a fixed percentage of an imported product's value. It maintains a constant degree of protection but sometimes it becomes difficult to determine the value of tax.
A combination of specific and ad valorem tariffs is called compound tariff. It does not have any disadvantage.

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