Final answer:
Custom duties based on the value of goods are known as ad valorem duties,
designed to protect domestic industries by raising the cost of imported goods.
Step-by-step explanation:
Custom duties that are based on a percentage of the value of the goods are ad valorem duties. This type of tariff is commonly used by governments as a trade policy instrument.
By levying taxes on the value of imported goods, nations aim to generate revenue and protect their domestic industries by making foreign products more expensive, thereby discouraging imports.
For instance, if large, flat-screen televisions are imported to the United States from China, and they face a 5% ad valorem duty, the price of these televisions will increase by that percentage of their value, which could make domestic alternatives more attractive to consumers.
This protection of domestic industries through tariffs can be a significant component of a nation's economic strategy.