Management Notes

Reference Notes for Management

A tax of 20 cents per unit of imported cheese would be an example of a (an):

A tax of 20 cents per unit of imported cheese would be an example of a (an):


a. Compound tariff
b. Effective tariff
c. Ad valorem tariff
d. Specific tariff

The Correct Answer Is:

  • d. Specific tariff

The correct answer is “d. Specific tariff.” To understand why this is the case, let’s delve into the concept of tariffs and the various types of tariffs, providing detailed explanations for each of the given options.

Specific Tariff:

A specific tariff is a type of tariff that imposes a fixed tax or duty on each unit or physical quantity of an imported product. In this case, where a tax of 20 cents per unit of imported cheese is applied, it perfectly fits the definition of a specific tariff.

This means that for each unit (e.g., kilogram, pound, piece) of cheese that is imported into the country, a flat tax of 20 cents is levied. Specific tariffs are relatively simple to administer and provide a predictable cost to importers, as the tax amount is fixed and not dependent on the value of the goods.

Compound Tariff:

A compound tariff is a combination of two different types of tariffs applied to the same imported product. It typically involves a specific component and an ad valorem component.

For instance, a compound tariff might comprise a fixed tax (specific) and a percentage tax (ad valorem). In the given scenario, where only a fixed tax of 20 cents per unit is mentioned, there is no ad valorem component involved. Therefore, it cannot be considered a compound tariff.

Effective Tariff:

An effective tariff takes into account not only the applied tariff rate but also other factors that can affect the total cost of importing a product, such as subsidies, taxes, or trade regulations. It provides a more comprehensive view of the actual trade costs.

However, the term “effective tariff” is not a distinct type of tariff; it is a concept used to evaluate the overall impact on trade costs. In this case, the description specifically refers to a fixed tax of 20 cents per unit and does not account for additional factors that would make it an effective tariff.

Ad Valorem Tariff:

An ad valorem tariff, as explained earlier, is a tariff that is calculated as a percentage of the value of the imported product. It is not a fixed amount per unit but rather a tax based on the product’s declared or assessed value. In the context of a 20 cents per unit tax, this does not align with the definition of an ad valorem tariff, which is based on a percentage of the value of the goods.

In conclusion, the tax of 20 cents per unit of imported cheese is correctly classified as a “specific tariff.” It is imposed at a fixed amount per unit of the imported product, making it a straightforward and predictable form of taxation for importers.

The other options, compound tariff, effective tariff, and ad valorem tariff, do not apply to this specific scenario, as they represent different types of tariffs or broader trade-related concepts that are not relevant to the fixed per-unit tax described.

Specific tariffs are commonly used in international trade and are especially suitable for goods where the value may vary significantly or where a stable and predictable import tax is desired.

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