Scenario: Konesia Joins the World
Konesia, a former totalitarian economy and pariah state, is taking steps toward a free market economy. The government wants to encourage trade but also wants to find a balance so that local businesses and industries are not harmed.
-If Konesia chooses to levy tariffs as a percentage of the stated price of an imported product,this would be an example of a(n)________.

Question

Quizplus · Accepted Answer

An ad valorem tariff is a tariff that is levied as a percentage of the stated price of an imported product. This would be the best choice for Konesia as they want to encourage trade while also finding a balance to protect local businesses and industries. Unlike a specific tariff, which levies a fixed amount per unit, an ad valorem tariff adjusts to changes in the price of the imported product, which can help prevent dumping (the practice of exporting goods to other countries at a price lower than the price charged in the home market) and protect local industries. A compound tariff is a combination of both specific and ad valorem tariffs, while a tariff-quota is a limit on the amount of a product that can be imported at a lower tariff rate.