Sweetland is a small country that imports cars from the world market at a price of $25,000. The country has an auto parts manufacturing industry that can meet the demand for auto parts by domestic car manufacturers. (The domestic cars are perfect substitutes for imported cars). Each car production requires auto parts worth $20,000. The government of Sweetland imposes a 25% tariff on imported cars so that domestic car manufacturers can now charge up to $31,250 for a car. 1. Define in words the effective rate of protection. What is the effective rate of protection for domestic car manufacturers? 2. Now suppose that to encourage domestic auto parts industry, government imposes a 25% tariff on auto parts, but no tariff on imported cars. 1. What is the effective rate of protection for domestic car manufacturers? 2. What is the nominal rate of protection for the domestic auto parts industry?

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Question 35
Sweetland is a small country that imports cars from the world market at a price of
$25,000. The country has an auto parts manufacturing industry that can meet the
demand for auto parts by domestic car manufacturers. (The domestic cars are perfect
substitutes for imported cars). Each car production requires auto parts worth
$20,000. The government of Sweetland imposes a 25% tariff on imported cars so
that domestic car manufacturers can now charge up to $31,250 for a car.
1. Define in words the effective rate of protection. What is the effective rate of
protection for domestic car manufacturers?
2. Now suppose that to encourage domestic auto parts industry, government
imposes a 25% tariff on auto parts, but no tariff on imported cars.
1. What is the effective rate of protection for domestic car
manufacturers?
2. What is the nominal rate of protection for the domestic auto parts
industry?
Show all your work.
Transcribed Image Text:Question 35 Sweetland is a small country that imports cars from the world market at a price of $25,000. The country has an auto parts manufacturing industry that can meet the demand for auto parts by domestic car manufacturers. (The domestic cars are perfect substitutes for imported cars). Each car production requires auto parts worth $20,000. The government of Sweetland imposes a 25% tariff on imported cars so that domestic car manufacturers can now charge up to $31,250 for a car. 1. Define in words the effective rate of protection. What is the effective rate of protection for domestic car manufacturers? 2. Now suppose that to encourage domestic auto parts industry, government imposes a 25% tariff on auto parts, but no tariff on imported cars. 1. What is the effective rate of protection for domestic car manufacturers? 2. What is the nominal rate of protection for the domestic auto parts industry? Show all your work.
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