1 10 Import tariff on a manufactured good in a country z equ

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!

Solution

(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