AEMECON 2300 PS3 Solutions

# AEMECON 2300 PS3 Solutions - International Trade and...

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International Trade and Finance Professor David R. Lee AEM/ECON 2300 Spring 2009 Solutions to Problem Set #3 Due Thursday, March 5, 2009 by 4:30pm. Please print and perform your work in the spaces provided below; attach extra sheets if necessary. Question 1: Effective Protection Brazil uses \$3,000 worth of imported electronic parts and \$2,000 worth of imported steel to produce a car. Assume that Brazil needs no other input. Assume too that the world price of a car is \$8,000. 1. What is the value added of the Brazilian car industry? \$ _ 3000 _ 2. (Scenario 1) Suppose now, that Brazil imposes a 10 percent ad valorem tariff on imports of cars. There is no tariff on either the electronic parts or steel imported as inputs. What is the effective rate of protection provided to the Brazilian producers of cars? Show your working. E = [n-(a 1 b 1 +a 2 b 2 )] / [1-(a 1 +a 2 )] =(.1 - .625*0)/ (1- .625) ______ 26.67 __% 3. (Scenario 2) Suppose that Brazil reduces the tariff on imports of cars to 5 percent, but at the same time imposes tariffs of 5 percent on imports of electronic parts. Brazil allows free import of steel. Calculate the new effective rate of protection for car manufacturers in Brazil. Show your working. E = (.05 - .625*((.05 * .6)+(0*.4)))/(1-.625) _______ 8.33 __% 4. (Scenario 3) Suppose now, tariff on imports of cars is maintained at 5 percent. But Brazil decides to remove tariffs on electronic part imports but introduces instead a tariff of 10 percent on imported steel. Recalculate the new effective rate of protection. Show your working. E = (.05 - .625*((0 * .6)+(0.1*.4)))/(1-.625) _______ 6.67 __% 5. Which scenario would a Brazilian car manufacturer who wants to be protected from imports like best? (i.e., Under which scenario is the Brazilian car manufacturer offered most effective protection) Scenario _____(1)__ 1

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Question 2: Dumping and Countervailing Duty Tomato farmers in the US have accused Mexico, Guatemala and Nicaragua of dumping tomatoes in the US domestic markets, to the detriment of tomato farmers in the US. The US Government needs to determine if this claim is true, before it can make an appropriate response. You are given the task of verifying this claim, using the information given below, by answering the questions below. Assume that the US imports tomatoes duty-free, i.e. there is no tariff on tomato imports from these countries.
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