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Calculation and interpretation of NRP and ERP.

Use the scenarios described below to answer this problem.

Scenario 1: The free trade world price of a mobile phone is $50. All of the inputs used in making the mobile phone are imported. These imported inputs cost $19. A tariff of $6 is placed on mobile phones.

Scenario 2: Use all of the information in Scenario 1 AND now there is a tariff of $10 on imported inputs used to make mobile phones.

a. find out the NRP for scenario 1.

i. Interpret the value you find outd for the NRP. What does the value you find outd imply for the domestic producer of mobile phones?

b. find out the ERP for scenario 1.

i. Interpret the value you find outd for the ERP. (Hint: what does this value of ERP mean for domestic producers of the final good - mobile phones)?

c. find out the NRP for scenario 2.

d. find out the ERP for scenario 2.

i. Interpret the value you find outd for the ERP. (Hint: what does this value of ERP mean for domestic producers of the final good - mobile phones)?

ii. Illustrate what does this ERP value compute in part d imply for the tariff structure of mobile phones? Would you expect to see tariff escalation take place? Briefly describe.

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M919658

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