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Meaning of Tariffs
Tariffs refers to import duties and export duties. In other words we can say tariffs is a tax or duty levied on goods when they enter or leave the national boundary.
Conted
Why impose tariff?
To discourage consumption To raise revenue To discourage imports To protect domestic industries
Types of Trade
Tariffs are classified in a number of ways.
1. On the basis of purpose 2. On the basis of origin and Destination 3. On the basis of country- wise discrimination
3. Compound duty: Often government levy compound duties which are a combination of the ad valorem and the specific duties. For instance a country may impose an import duty on a car at the fixed rate of 1 lake afs + 10% on the price of car.
2. Double column tariffs: Under this system, two different rates of duty exist for all or some of the commodities. It can be classified as under, I: General or conventional Tariffs: The general tariffs is the list of tariffs which is announced by the government as its annual tariffs policy at the beginning of the year. Conventional tariffs based on agreements with other countries. II: maximum and minimum Tariffs: Govt. usually fix rate two rates for importing the same commodity from different countries. Countries have good relation minimum rates are imposed like Pakistan and maximum tariffs rate is imposed on imports from the rest of the countries.
Effects of tariffs
1.Trade Effect: The impact of the tariff on the quantity of goods imported and sold in the domestic market. As demand would decline due to the tariff imports of the commodity would also decline
2.Consumtion effect
Refers to the reduction in domestic consumption as a result of a Tariff imposed on an imported commodity. As the price of the commodity would increase as a result of the tariff its demand in the market of the importing country would decline
3.Revenue Effect
The revenue collected by the government as a result of the imposition of the tariff on the imported commodity.
4. Production Effect
The increase in domestic production of the commodity as a result of the tariff imposed on the imported commodity.
Before Tariff
Domestic Supply
Price
Quantity
After Tariff
Domestic Supply
Price
Quantity
Price
Tariff
Quantity
Price
Tariff
Quantity
Price
Tariff
Quantity
Price
Tariff
Quantity
Price
Tariff
Quantity
Key Words
Taxes levied on imports (also sometimes on exports)
Specific tariff: fixed charge for each good imported Ad valorem tariff: a % of imported goods value
Who gains:
Government Domestic producers (at least in the short run) Employees of protected industries keep their jobs
Who loses:
Consumers who pay higher prices The economy which remains inefficient Employees of protected industries who dont develop new skills