Suppose that the nominal tariff rate on an imported final product is 0.15, while the ratio of the value of imported input to the value of the finished product is 0.65, and the nominal tariff rate on the imported input is 0.025.
- Calculate the effective rate of protection
- Now assuming government increases the nominal tariff rate on the imported input to 0.1, calculate the new effective rate of protection.
- Assuming you are a member of a trade policy based that seeks to bolster domestic production, based on your answers in (i) and (ii), which nominal tariff rate on the imported input will you suggest to your boss.
- Briefly explain your answer