A domestically produced DVD player sells for $500, including $250 of imported components. A tariff of 20% is imposed on the imported DVD player. What is the effective rate of protection?
A) 20%
B) 30%
C) 40%
D) 60%
E) 62%

Question

Quizplus · Accepted Answer

The effective rate of protection is calculated by considering the value added domestically. The value added is $250 ($500 - $250). The tariff increases the cost of imported components by 20%, which is $50 (20% of $250). The effective protection is the tariff amount ($50) divided by the domestic value added ($250), which is 20%. Therefore, the effective rate of protection is 40% (50/250 * 100).

A Domestically Produced DVD Player Sells for $500, Including $250