Question

4) Suppose that the production of K500,000 worth of copper in Zambia requires K100,000 worth of sulphuric acid. Suppose further, that Zambia nominal tariff rates for importing these goods are 20 percent for copper and 10 percent for sulphuric acid. Given this information, what would be the effective rate of protection for Zambia's copper producing industry.                
[6 Marks]

Answer 1

For K500,000 worth of copper K100,000 worth of Sulphuric acid is required.

To import copper 20% nominal trrif rate is considered. So the import rate will be K (500,000 x 20)/ 100 = K100,000

So to import copper Zambia has to pay K(500,000+100,000)=K600,000

To import sulphuric acid Zambia has to pay K100,000 + K (100,000 x 10)/ 100 = K110,000

Since Zambia is producing Copper from sulphuric acid they would produce K500,000 worth of copper from K110,000 worth of sulphuric acid.

So the effective rate of protection for Zambia will be g =  

where g is the effective rate of protection. So, V is the domestic value added under free trade and V' is value added after duty imposed.

So the rate of protection is (110'000-100'000)/100,000 = 0.1 = 10%

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