Scenario 6.1
Suppose that United States furniture makers import $100 of wood and parts in order to make a dining room table selling for $500.The imports have no tariff of quota restrictions.
-Based on Scenario 6.1 above,if a tariff of 20 percent is placed on imports of dining room tables,and another tariff of 50 percent is placed on imports of wood and parts,then the effective rate of protection on tables made in the United States is
A)70 percent.
B)50 percent.
C)20 percent.
D)12.5 percent.
E)0 percent.

Question

Quizplus · Accepted Answer

The effective rate of protection is calculated by considering the value added domestically. Initially, the value added is $400 ($500 - $100). With a 50% tariff on wood and parts, the cost of imports rises to $150, reducing the value added to $350. The 20% tariff on the final product increases the price to $600, making the new value added $450. The effective rate of protection is the increase in value added ($450 - $400) divided by the original value added ($400), which is 12.5%.

Scenario 6.1 Suppose That United States Furniture Makers Import $100 of Wood