The formula for the effective tariff rate is , where is the effective rate of protection, is the nominal tariff rate on the final product, is the ratio of the value of the imported input to the value of the final product, and is the nominal tariff rate on the imported input. Suppose the tariff rate on the final product is 5 percent. If no imported inputs are used in the domestic production of the final product, the effective tariff rate is:
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The formula for the effective tariff rate is e=(n-ab)/(1-a), where e is the effective rate of protection, n is the nominal tariff rate on the final product, a is the ratio of the value of the imported input to the value of the final product, and b is the nominal tariff rate on the imported input. Suppose the tariff rate on the final product is 5 percent. If no imported inputs are used in the domestic production of the final product, the effective tariff rate is: (A) 5 percent (B) 3 percent (C) 12 percent (D) 8 percent
Trade policy: tariffs, quotas and protection has come up 63 times in 6 exams since 2010.
This question is on Dumping, effective protection and industrial policy, part of Trade policy: tariffs, quotas and protection in International Economics.
Price discrimination across borders, protection of value added, and trade-related industrial policy.
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Question from the DSE 2019 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.