Suppose that the nominal tariff rate on finished computers is 12 percent and that the weighted average of the nominal tariff rates on the inputs used in producing computers is 18 percent. Thus, the effective rate of protection for the computer industry must ?
Correct answer: A. be less than 12 percent and can be negative
- A. be less than 12 percent and can be negative
- B. be less than 12 percent but must be greater than zero
- C. equal 6 percent
- D. exceed 30 percent
Explanation
When the tariff on inputs is higher than the tariff on the finished product, protection of domestic value added falls and may become negative. Therefore, the effective rate is below 12 percent and can be negative.
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