ECON231 Lecture Notes - Lecture 5: Government Procurement, Demand Curve, Final Good

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Fact: free trade can maximize world output and benefit all countries. Practically all nations impose some restrictions on the free flow of international trade. There are 2 types of tariffs: specific tariffs: a specific tariff is expressed as a fixed sum per physical unit of imported good(s, ad-valorem tariffs: is levied as a specific percentage of the value of imported goods. There are also compound specific and ad-valorem tariffs. U. s. uses both specific and ad-valorem tariffs about half the time each one, while the eu relies mainly on ad-valorem tariffs. When a small country imposes a tariffs, it has no effect on the foreign (world) price of a good (because its demand for the good is insignificant compared to world demand) However, the domestic price of the imported good will rise by the full amount of the tariff for producers and consumers.

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