Question

Wood and glass are used to make furniture. The share of wood in the furniture price is 40%, while the share of glass - 10%. The duty rate on wood is 20%, and on glass 10%. At the same time, the finished furniture market is also protected: the duty on furniture is 39%. We can say that as a result of the application of such a commercial policy, the value added generated in the furniture production sector increases by:
(a) 96%,
(b) 33%,
(c) 60%,
(d) 0.33%,
(e) the lack of information on the cost structure in this sector does not allow an answer to the question.

Answer 1

Wood account for 40% of Furniture price whereas Glass account for 10% hence,50% is raw material cost so ,value added is remaining 50%, Now suppose price without any duty is x with duty price would be 0.4x*0.2(duty on wood)+0.1x*0.1(duty on glass)+0.39x(duty on finished furniture)+x(price without duty)=1.481x now, value added without any duty =59% of x=0.5x, with duty value added=1.481x-0.5x=0.981x

So value added increases by ((0.981-0.5)/0.5)*100=~96% Hence, option a) is correct