Homework Answers
Effective rate of protection (ERP) measures the effect of tariff on value added per unit of output
ERP = VAdomestic/VAworld - 1
where VA- value added
1st stage:
Price after tariff = 84
Price before tariff = 80
Input cost = 0
VAworld = Price before tariff - Input Cost = 80
VAdomestic = Price after tariff - Input Cost = 84
ERP = 84/80 - 1 = 5%
2nd stage:
Price after tariff = 253
Price before tariff = 220
Input cost = 84
VAworld = Price before tariff - Input Cost = 136
VAdomestic = Price after tariff - Input Cost = 169
ERP = 169/136 - 1 = 24.3%
3rd stage:
Price after tariff = 675
Price before tariff = 500
Input cost = 253
VAworld = Price before tariff - Input Cost = 247
VAdomestic = Price after tariff - Input Cost = 422
ERP = 422/247 - 1 = 70.9%
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