ps1-6333-sp18.pdf - ECO 6333 Trade Policy Spring 2018...

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ECO 6333: Trade Policy Thomas Osang Spring 2018 Due Monday, February 5, 2018 Problem Set 1: Tariff Barriers Under Perfect Competition Part I: In the graph below, determine whether the tariff is a specific tariff or an ad valorem tariff. Explain carefully. - 6 Foreign Supply (w/ tariff) Foreign Supply Domestic Demand International Market p Q @ @ @ @ @ @ @ @ @ @ @ @ @ 1
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Part II: 1. Why do you suppose that there has been such a proliferation of differentinstruments of protection? 2. Suppose, in a small country, that under free trade a final good F has a price of $1800, that the price of the only two inputs to good F, goods A and B, pare P A = $600 and P B = $500 and that one unit each of A and B is used in producing one unit of good F. Suppose also that an ad valorem tariff of 20 percent is place on good F, while imported intermediate goods A and B face ad valorem tariffs of 10 and 15 percent, respectively. Calculate the ERP for the domestic industry producing good F. Interpret the meaning of this calculated ERP.
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