Question

True or False: explain your answer

the nominal tariff on a commodity is higher than the nominal tariff on the imported input used in the production of the commodity, then the rate of effective protection is higher on the commodity than on the input.

Answer 1

True
The ad volarem tariff rates on import of final products were nominal rate of tariff. If a 5 percent tariff on finished goods have 5 percent protection to domestically produced import substitutes. This policy measures adopt to protect the domestic industry and also encourage the employment expansion. The domestic value added is calculated by price of final commodity minus the cost of imported inputs for the production. If lower tariff applied in the inputs imported than the final imported products, the effective protection rate will exceed nominal tariff rates.
The nominal tariff can be calculated using;
H = (P’ – P)/P where, H is the nominal tariff rates, P is the world price without tariff and P’ is the domestic price including tariffs.
The imposition of the effective rate of protection will affect the producers very badly. The tax imposed on the raw materials rising affect the decisions of e producers. Thus the nominal rate of tariff is greater than the nominal tariff rate of imported final goods to the domestic economy.