AEM230_ProblemSet

# AEM230_ProblemSet - AEM/ECON 230 International Trade and Finance Prof David Lee Fall 2007 Problem Set#3 Due on Friday October 19 at 4:30PM Question

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AEM/ECON 230 Prof. David Lee International Trade and Finance Fall 2007 Problem Set #3 Due on Friday, October 19, at 4:30PM Question 1: Effective Tariff, Tariff Escalation and Bound Tariffs [16 points] Chile, Malaysia and Switzerland produce chocolate bars using cocoa and labor. In each of the three countries, domestic labor and imported cocoa account for respectively 30 percent and 70 percent of total production costs. Import tariffs on cocoa and chocolates are presented in Table I. Table I: Import Tariffs on Cocoa and Chocolates in Chile, Malaysia and Switzerland Product Chile’s Import Tariffs Malaysia’s Import Tariffs Switzerland’s Import Tariffs Cocoa 6 percent 6 percent 0 percent Chocolate 6 percent 9 percent 5.7 percent a. Calculate the effective tariff on chocolates in each country. [9 points] b. Which country(ies) affords the lowest and highest levels of nominal protection to domestic chocolate producers? Which country(ies) affords the lowest and highest levels of effective protection to domestic chocolate producers? [4 points]

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c. Suppose that labor costs increased in Malaysia. Domestic labor now accounts for 50 percent of total chocolate production costs (imported cocoa accounts for the remaining 50 percent). What is the new effective tariff on chocolates? [3 points] Question 2: QUOTA vs. TARIFF [40 points] 1. The Republic of Cape Verde produces and consumes peanuts and is a “small” trading
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## This homework help was uploaded on 02/19/2009 for the course AEM 2300 taught by Professor Lee,d.r. during the Fall '06 term at Cornell University (Engineering School).

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AEM230_ProblemSet - AEM/ECON 230 International Trade and Finance Prof David Lee Fall 2007 Problem Set#3 Due on Friday October 19 at 4:30PM Question

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