Suppose that bicycles are made in the United States out of a combination of domestic and foreign
Question:
a. If a bike sells for $500 but requires $300 of imported parts, what is the domestic value added?
b. If a 20 percent tariff is levied on bikes of the same quality and with the same features, how do the price and the domestic value added change? (Assume the United States cannot cause the world price to change.)
c. What is the effective rate of protection?
d. If in addition to the 20 percent tariff on the final good, a 20 percent tariff on imported parts is also levied, what is the effective rate of protection for U.S. bike manufacturers?
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a Value added is 500 300 200 b The domestic price rises by 20 percent ...View the full answer
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