Why a countrys use of preferential duties is inconsistent

Reference no: EM131917615

Problem

1. Explain why a country's use of preferential duties is inconsistent with MFN treatment of trading partners by that country.

2. Why do you suppose that there has been such a proliferation of different instruments of protection?

3. Suppose, in a small country, that under free trade a final good F has a price of $1,000, that the prices of the only two inputs to good F, goods A and B, are PA 5 $300 and PB 5 $500, and that 1 unit each of A and B is used in producing 1 unit of good F. Suppose also that an ad valorem tariff of 20 percent is placed on good F, while imported goods A and B face ad valorem tariffs of 20 percent and 30 percent, respectively. Calculate the ERP for the domestic industry producing good F, and interpret the meaning of this calculated ERP.

Reference no: EM131917615

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