Homework Answers
a) Effective rate of protection = tariff rate on final product + world price of input x (tariff on finished good – tariff on input/component)/(world price of finished good – world price of input component)
= 10% + 80*(10% - 15%)/(120 - 80)
= 0%
ERP is 0%
b) Effective rate of protection = tariff rate on final product + world price of input x (tariff on finished good – tariff on input/component)/(world price of finished good – world price of input component)
= 10% + 80*(10% - 0%)/(120 - 80)
= 30%
ERP is 30%
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