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Brief description: A tariff is an indirect taxes imposed upon imports. They can be either specific (fixed amount per good) or ad valorem (a % of the value). There are several reasons for the imposition of tariffs. These include reducing imports and protecting domestic firms from competition, reducing imports to reduce balance of payments deficits and raising government revenue.

Detailed description: If the government of a country imposes a tariff on the imports from another country they raise the world price by the amount of the tariff they impose. As a result of the tariff the price at which domestic consumers can purchase the good from the rest of the world has increased from Pw to Pw1. Imports have fallen from FD to HI. Domestic production has increased by FK.