Suppose there is no tariff on imported inputs and the ratio of the value of imported inputs the value of the final product is 0.5 If the nominal tariff rate on the final product is 10 percent, the effective tariff rate equals ?
Correct answer: D. 20 percent
- A. 5 percent
- B. 10 percent
- C. 15 percent
- D. 20 percent
Explanation
Effective protection equals the tariff on final output divided by the share of domestic value added: 10% ÷ (1 − 0.5) = 20%. Because imported inputs are untaxed, the tariff raises domestic value added proportionately more than the nominal rate.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
Practise Microeconomics
1,742 free Microeconomics MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Economics questions like this
Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Microeconomics questions
Consumer surplus is the area ?
If a buyer's willingness to pay for a new Honda is Rs20,000 and she is able to actually buy it for Rs18,000 her consumer surplus is ?
Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay Rs30 for one, buyer 2 is willing to pay Rs25 for one, and buyer 3 is willing to pay Rs20 for one. If the price is Rs25, how many vases will be sold and what is the value of consumer surplus in this market ?
A tariff can _______ raise a country's welfare?
If a nation fitting the criteria for the large nation model imposes an import tariff ?
According to the _____ argument for protection, tariffs can shield new industries from import competition until they have grown strong and efficient enough to withstand the competition by foreign producers ?