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TARIFFS: A DEFINITION


DEFINITION: A tariff is a tax on imported products or ser vices. In the case of tariffs imposed by the United States, the business that imports or produces the foreign product must pay the tax to the U.S. government. The tariff revenue goes directly to the U.S. Treasury.
EXAMPLE:

Suppose two different companies, Beebock and Bike, sell athletic shoes in the United States. Beebock is located in Brazil. Bike is located in Or tonville, Minnesota. A tariff must be paid on all shoes made outside the United States and sold in the United States. The tariff is 10 percent of all total sales revenues. Both companies sell 100,000 pairs of shoes per month at a price of $100 per pair .

1. Which company must pay the tariff?

2. How much will the tariff cost the company?

3. Who receives the revenues generated by the tariffs?

4. Does Bike benefit from this tariff?

© Council for Economic Education
United States History: Focus on Economics, Lesson 7

Can Business Profit from Tariffs: Economics Lesson