7. If the U.S. imposes a 20% tariff (per pair) on imported shoes and no other tariffs, what will be the price of a pair of shoes in the ROW? What will be the price of a pair of shoes in the U.S.?

[Hint: Be careful here.  If the price of shoes falls by 5% from the pre-tariff price, you might think that the price must rise by “the remaining 15%” in the U.S..  But do the math, and you’ll see that would result in the U.S. price ending up more than 20% higher than the ROW price. That can’t be when a 20% tariff is imposed on the ROW price.  So you once you find where the ROW price ends up, you can find the U.S. price by making it 20% higher than that ROW price.] 

8. If the U.S. imposes a 20% tariff (per pair) on imported shoes and no other tariffs, what is the U.S. shoe industry’s value added for each pair of shoes?

9. After the 20% tariff (per pair) on imported shoes, what is the effective rate of tariff protection (ERTP) for the U.S. shoe industry? 

10. Now, suppose that—in addition to the 20% tariff (per pair) on imported shoes—the U.S. also imposes a 10% tariff on the imported components used by the shoe industry to make each pair of shoes. What is the effective rate of tariff protection (ERTP) for the U.S. shoe industry now? 

Attachment:- 105854_1_E238PS-4-S12.doc