Final answer:
The accurate description of tariffs is that compound duties include both a specific and an ad valorem charge. The correct answer is option e.
Step-by-step explanation:
When discussing tariffs, it's essential to understand their role in international trade and economic policy. The correct option that describes the nature of tariffs is: E) Compound duties include both a specific and an ad valorem charge.
Specific duties are levied as a fixed fee based on the physical units, such as per kilogram or per item, of the goods being imported. On the other hand, ad valorem duties are calculated as a percentage of the value of the imported goods. Neither of these is a flat charge per unit or strictly percentage-based for compound duties—it's a combination of both.
Regarding the question's options, A) is incorrect because tariffs are typically imposed to protect domestic industries and can increase government revenue. B) is incorrect as it inaccurately describes ad valorem duty. C) is also incorrect, as it confuses specific duty with ad valorem duty. D) is not true because tariffs are generally designed to give an advantage to domestic products over foreign goods by making the latter more expensive, hence not treating them equally.
An example of tariffs in action is when the U.S. government imposed a 5% tariff rate on large, flat-screen televisions imported from China, which is an ad valorem duty based on the value of the TVs. If the U.S. government were to reduce this tariff, the equilibrium price of flat screen TVs would likely decrease, leading to an increase in the equilibrium quantity sold, as the reduced cost of imports is reflected in lower retail prices.