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You are given the following information about the personal computer (PC) industry:
World price of PCs
$2000
Cost of imported memory chips
$500
Domestic value added (free trade)
$1500
Tariff on PCs
$200
Tariff on memory chips
$0
1. Find the NRP and the ERP. Show all calculations and formulas.
2. Suppose the government were to impose a tariff of 30 percent on memory chips. Calculate the NRP and the ERP in the PC industry with this new tariff. Show all calculations.
3. Did the NRP change between part a and b? Why or why not?
4. Did the ERP change between part a and b? Why or why not?
5. What impact does the 30% tariff on memory chips have on domestic producers of PCs (Hint: use the concept of ERP in your answer).
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