Assume that production of cars in Indonesia involves the use of intermediate goods listed in the table below. The table presents the value of these intermediate goods at the world prices as well as import tariffs imposed in Indonesia. Goods World price Tariff (%) Cars 100 20 Steel 20 5 Rubber parts 10 10 Electronics 15 10 Mechanical parts 30 (a) Calculate the effective rate of protection of cars in Indonesia. (b) If Indonesia agrees to lower import tariff on cars to 15%, is it possible to keep the effective rate of protection unchanged? (c) Is it possible to impose tariffs in such a way to have a negative effective rate of protection of cars? What would that mean?

Assume that production of cars in Indonesia involves the use of intermediate goods listed in the table below. The table presents the value of these intermediate goods at the world prices as well as import tariffs imposed in Indonesia. Goods World price Tariff (%) Cars 100 20 Steel 20 5 Rubber parts 10 10 Electronics 15 10 Mechanical parts 30 (a) Calculate the effective rate of protection of cars in Indonesia. (b) If Indonesia agrees to lower import tariff on cars to 15%, is it possible to keep the effective rate of protection unchanged? (c) Is it possible to impose tariffs in such a way to have a negative effective rate of protection of cars? What would that mean?

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter17: International Trade

Section: Chapter Questions

Problem 2.6P

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