Tariffs
Describe a specific tariff, an ad valorem tariff, and a compound tariff. What are the advantages and disadvantages of each?
A specific tariff is a fixed amount of taxation, placed by a government, per physical unit of an imported product. (Carbaugh, 2004). This enables the government of the importing nation to target certain goods from other countries that might be competitive with the nation's major, domestically produced goods. However it also reduces price competition internally within the nation for those goods and services for its citizens and makes its citizens pay more for those goods. An ad valorem tariff is a tax on imports that is specified as a percentage of the value of the good or service being taxed. (AmosWEB, 2004). This tends to penalize luxury or more expensive imported goods, making them even more prohibitive in terms of cost. A compound tariff is a combination of an ad valorem tariff plus a specific tariff. It places a tariff upon a specific good, but at a rate that is not fixed, but is a percentage of the value of the good or service being taxed. (ASYCUDA, 2003)
Under what conditions does a nominal tariff applied to an import product overstate or understate the actual, or effective, protection afforded by the nominal tariff?
A nominal tariff, or the rate of duty charged on the gross value of a given product may overstate the actual protection given to that product if it seems prohibitively high in...
But may not be so in economic reality, if, in competition with the other substitute goods of the nation it is being imported to, the product priced relatively low or attractively. Conversely, even a low nominal tariff may be protective if the imported product is easily substituted by cheaper, comparable goods produced or not subject to a tariff in the foreign nation.
Less-developed nations sometimes argue that the industrialized nations' tariff structures discourage the less-developed nations from undergoing industrialization.
Explain.
Nations that are industrialized export cheaper goods and services at a rate that less developed nations cannot compete with, so the less developed nations purchase these goods, thus subsidizing the further growth of developed nations, rather than the developing nation's own internal growth. However, when the less-developed national governments attempt to tax the goods of the more developed nations, the more developed nations cry foul and call the less-developed nations protectionist, in a negative fashion, and use their national economic leverage to start trade wars.
Distinguish between consumer surplus and producer surplus. How do these concepts relate to a country's economic welfare?
Producer surplus refers to the surplus of manufactured goods produced relative to the rate of consumer demand, while consumer surplus…
