Tariff:

A tax on an imported good is known as a tariff. While every country has different tariff regulations, there are five main types of tariffs namely revenue, ad valorem, specific, prohibitive and protective tariff. A revenue tariff increases government funds. For example, countries that do not grow oranges may create a tariff on importing oranges. The government would then make money from businesses that import oranges. An ad valorem tariff means that the tariff applies to a percentage of the import's value such as a set number of cents on every dollar of value. A specific tariff, on the other hand, means that the tariff is not concerned with the estimated value of the imported goods, but rather is based on specific amount of the goods. A specific tariff may apply to the number of goods imported or to the weight, volume or other measurement of the goods. A prohibitive tariff is one that is such as high cost that it keeps the item from being imported. A protective tariff is a tariff that is used to raise the price of imported goods as a protective measure against the competition from foreign markets. A higher tariff allows a local company to compete with foreign competition. Protective tariffs can be advantageous as they can help foster the local economy, but sometimes they can also make the price of the item so expensive that companies must charge more. The end result is that consumers pay more for the goods. When no tariff or other restrictions are placed on imported goods, it is called free trade. According to some economists, free trade allows increased economic growth potential. Others counter that the removal of tariffs to permit free trade only makes the economy have to depend on global markets rather than increase the stability of domestic markets.