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Unformatted text preview: and a 5% tariff is placed on its inputs so that input costs rise to $231. Value added now equals $99. The effective rate of protection for the bicycle industry equals (99-80)/80 or 23.8%, not the 10% nominal tariff. This tells us that income rises by 23.8% in the bicycle industry. Indifference Curve Analysis of a Tariff A tariff distorts consumption so we end up on a lower indifference curve. Production of the import good rises and that of the export good falls. quotas A quota is a limit on the amount of imports. For example, the U.S. allows 1 million tons of sugar to be imported but no more than that. The tariff has the same effects on producers and consumers as a tariff. The domestic price rises above the world price. Other Barriers to Trade • regulatory barriers: health & safety standards; government procurement policies • export barriers: quotas & duties • exchange controls...
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.
- Fall '09
- Personal Finance