Question

This Question: 1 pt 36 of 50 (32 complete) This Test: 50 pts possible Suppose that in the United States laptops are built from a combination of foreign parts and domestic inputs a. Itf a laptop sells for $500 but requires $300 of imported parts, the domestic value added is s b. Assuming that the Unilted States cannot cause the world price to change, a 30 percent tariff levied on laptops of the same quality and with the same features will cause the domestic price to rise to s and cause the domestic value added to become S c. In this case, the effective rate of protection is percent. (If rounding is necessary, round to one decimal place.) d"inac ition to the 30 percent tariff on the final good, д 30 percent tariff on imported parts is leved, the effective rate of protection for us. laptop m u actres becomes percent (if rounding is necessary, round to one decimal place.) Enter your answer in each of the answer boxes.

Answer 1

Solution

a.The domestic value added is $200 i.e., $500 - $300

b.Tariff will cause the domestic price to rise to $650 ($500 * 1.30) .The domestic value added to become $350 ($650-$300)

c.Effective rate of protection = ($350 / $200) i.e., 75%

d.New price of final laptop = $650 ; New price of imported parts = $390

Therefore new value added = $260

New effective rate of protection = 30% ($260 / $200)

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