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16 Jun 2019

Assume that the free trade unit price of a lamp is $200 and the unit cost of an input for a lamp is $100. Given this information about lamp production in a country, calculate the effective rate of protection (ERP) afforded to the lamp industry on each of the following tariffs on lamp inputs.

a) 12% tariff on imported lamp inputs

b)5% tariff on imported lamp inputs

c)20% tariff on imported lamp inputs

d) 0% tariff on imported lamp inputs

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Related questions

Nominal Tariffs vs. Effective Rates of Protection (15 marks) Suppose the free trade price of a domestic product that faces foreign competition is $10,000 and contains 25% imported components.

Assuming this is a small country, consider the following situations:

a) A 10% tariff is placed on the (final) product but not on the imported components;

(i) What is the products price after the imposition of the tariff?

(ii) What is the domestic value added before and after the imposition of the tariff?

(iii) Calculate the effective rate of protection.

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(i) What is the products price after the imposition of both tariffs?

(ii) What is the domestic value added after the imposition of both tariffs?

(iii) Calculate the effective rate of protection.

Suppose the free trade price of a domestic product that faces foreign competition is $10,000 and contains 25% imported components. Assuming this is a small country, consider the following situations:

A 10% tariff is placed on the (final) product but not on the imported components;

i) What is the product's price after the imposition of the tariff?

ii) What is the domestic value added before and after the imposition of the tariff?

iii) Calculate the effective rate of protection

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c. Based on your answer to part (b), what is the impact of the China-ASEAN free-trade area on the welfare of China?

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