In an inflationary environment, then over time
A) a specific tariff will tend to raise more revenue than an ad valorem tariff.
B) an ad valorem tariff will tend to raise more revenue than a specific tariff.
C) an optimum tariff will tend to raise more revenue than an escalating tariff.
D) a tariff quota will tend to raise more revenue than a specific tariff.
E) an import quota would raise more revenue than a specific tariff.

Question

Quizplus · Accepted Answer

In an inflationary environment, the prices of goods increase over time. An ad valorem tariff is a percentage of the value of the good being imported, so as the price of the good increases, the revenue generated by the tariff will also increase. On the other hand, a specific tariff is a fixed amount regardless of the price of the good, so in an inflationary environment, it will generate less revenue in real terms.

In an Inflationary Environment, Then Over Time