If a tariff on bikes causes domestic bike prices to rise by 20% and domestic value added in the domestic bike industry to rise by 30%,then
A)the nominal rate of protection of bikes is 20%.
B)the effective rate of protection of bikes is 30%.
C)the effective rate of protection is higher than the nominal rate.
D)All of the above.

Question

Quizplus · Accepted Answer

The nominal rate of protection, which is the percentage increase in domestic prices due to the tariff, is indeed 20%. The effective rate of protection, which measures the percentage increase in the value added by the domestic industry due to the tariff, is 30%. Since the effective rate of protection is higher than the nominal rate, all statements are correct.

If a Tariff on Bikes Causes Domestic Bike Prices to Rise