Question

Suppose that the production of $200 worth of bicycle in China requires $100 worth of components, components. Given this information, calculate the effective rate of protection for China's bicycle China's nominal tariff rates for importing these goods are 50 percent for bicycle and 10 percent for industry.

Answer 1

The effective rate of protection is:

$g = \frac {(200 - 100) - (50 + 10)} {50 + 10} = 0.67.$