international economics

[neha 1]

suppose that leather accounts for 75% of the cost of making shoes. there is a 25% import tariff on shoes and 20% import tariff on leather.  the effective rate of protection on the production of shoes is:
a. 20%
b. 30%
c. 40%
d. 50%

[Sunny]

http://en.wikipedia.org/wiki/Effective_rate_of_protection

this might help u. !!

[gkaur]

Effective rate of protection signifieshow mych protection is actuallyor ineffect providedto domestic production of import competing commodity which uses imported raw material. Its calculated as
E=(t-kn) / 1-k
Where t means nominal tariff rate on final commodity(paid by final consumers of commodity)
K means ratio ofcost of imported input to price of final commodiy(in absence oftariffs)
N means nominal tariff in imported input

So in the given quest. Rate of effective protection n shoes is E=[0.25-(0.75)(0.20)]/1-0.75=0.1/0.25=0.4 or 40%

Ref: Book of International Economics by Domnick Salvatore