Question

give an example of a tariff

Answer 1

Here are two simple, concrete examples of tariffs (one ad valorem and one specific), with the immediate price and revenue effects shown.

1) Ad valorem tariff (percentage)
- Policy: Country imposes a 20% tariff on imported cars.
- World (pre‑tariff) price: $20,000 per car.
- Tariff per car: 20% × $20,000 = $4,000.
- New price faced by consumers (if fully passed on): $20,000 + $4,000 = $24,000.
- If imports fall from 10,000 to 8,000 cars after the tariff, government revenue = 8,000 × $4,000 = $32,000,000.

2) Specific tariff (fixed amount per unit)
- Policy: Country charges $100 per ton tariff on imported steel.
- World price: $500 per ton.
- New domestic price (if passed on): $500 + $100 = $600 per ton.
- If imports fall to 200,000 tons, government revenue = 200,000 × $100 = $20,000,000.

Notes: Tariffs typically raise the domestic price, reduce import volume, generate government revenue, can protect some domestic producers, and create welfare losses (consumer loss > producer gain + tariff revenue).