1. (10% Import tariff on a manufactured good in a country z equals 5% while tari
ID: 1258625 • Letter: 1
Question
1. (10% Import tariff on a manufactured good in a country z equals 5% while tariff on raw materials is 1%. In price of the final imported raw materials makes up 40%. Calculate the effective rate good, value of of protection for domestic manufacturing in the country. 2. (25% The following figure depicts the international market for soybeans: Export supply 142 Import demond o Quantity (millions of bushels of soybeans a) What is the world price of soybeans if there is free international trade? b) If the importing country imposes a quota of250 million bushels. the What is the price of soybeans in the importing country? What is the quota rent? Show all answers on thegraph!Explanation / Answer
(1)
Effective Rate of Protection = (Tariff on manufactured good - Tariff on raw material) / Value added
= (5% - 1%) / (100% - 40%)
= 4% / 60% = 0.0667, or 6.67%
(2)
(a) If there is free trade, world price is where export supply curve intersects import demand curve, that is, $10. Equilibrium output is 400 million.
(b) When quota of 250 is imposed, world price remains unchanged at $10. But price in importing country increases to $12.
Quota rent = $(12 - 10) x (400 - 250) million = $2 x 150 = $300 million
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.