Question

What is the function and purpose of a tariff?

Answer 1

Tariff is a most common kind of trade barrier. It is a tax imposed on the imported goods and services.

It has two functions :

1. It generates government revenue as the government get the taxed amount which it can use for its expenditures in the economy.

2. It is beneficial for the domestic producers in a way that now with imports becoming expensive, domestic consumers can shift their demand to the domestic producer and thus benefiting them.

Thus the purpose of the tariff is to generate extra revenue for the government and increase domestic production in an economy.