Question

14. Suppose that the production of $1 million worth of steel in Canada requires $100,000 worth of taconite. Canada’s nominal tariff rates for importing these goods are 20 percent for steel and 10 percent for taconite. Given this information, calculate the effective rate of protection for Canada’s steel industry.

Answer 1

The effective rate of protection for Canada’s steel industry is 21%

Step-by-step explanation:

The computation of the effective rate is shown below:

Steel percentage = (Production worth of steel) ÷ (Taconite worth)

= ($1,000,000) ÷ ($100,000)

= 10%

And the tariff rate for steel is 20%

And the taconite percentage is 10%

So, the effective rate would be equal to

= Tariff rate for steel + taconite percentage × steel percentage

= 20% + 10% × 10%

= 20% + 1%

= 21%