Suppose the world price (PW) of shoes is K20.00 per pair. To produce a shoe, it...
Suppose the world price (PW) of shoes is K20.00 per
pair.
To produce a shoe, it takes K12.00 worthy of leather at free trade
to make a pair.
Suppose country A levies a norminal tariff rate on shoes of
30%.
(a). calculate the effective rate of protection if leather is
imported duty free.
(b). Calculate the effective rate of protection if leather is
imported at 20% norminal tariff rate..
Homework Answers
Effective rate of protection = tariff rate on imported finished good + world price of input / component x (tariff on finished good – tariff on input/component)/(world price of finished good – world price of input component)
a) Effective rate of protection = 30% + (12)*(30% - 0%)/(20 - 12)
= 75%
b) Effective rate of protection = 30% + (12)*(30% - 20%)/(20 - 12)
= 45%
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