Question

Calculate the effective rate of protection for the domestic MP3 player industry following the imposition of a 20 percent tariff on the imports of MP3 players. The cost of material inputs used in the production of MP3 players in the country is $100 per unit, and there is free trade in these material inputs. The world price of MP3 players is $175 per unit. Assume that the country is a small country.

Answer 1

Answer:

effective rate of protection for the domestic is 46 %

Explanation:

given data

imposition = 20 percent

cost of material inputs = $100 per unit

world price =  $175 per unit

solution

we get here Extra amount that is

Extra amount = world price × tariff mean  ........................ 1

Extra amount = $175 × $20%

Extra amount = $35

and

So we get effective rate of protection for the domestic is

effective rate of protection =  35 ÷ (175-100)

effective rate of protection = 46 %