Use the scenarios described below to answer this question.
Surley is an American bicycle company that gets some of the parts from abroad.
Scenario 1: For similar bicycles sold on the world market, the free trade price is $1,482. Many of the parts used to make the bicycle are imported. The cost of imported parts is $425.
A tariff of $170 is imposed on imported bicycles.
Scenario 2: There is a tariff of $69 imposed on imported inputs used to make bicycles.
Question: What is the effective rate of protection on bicycles for Scenario 1? Enter your number as a percentage (for 1%, you would enter "1" but not "0.01") rounded to 2 decimal places.
This question is a follow-up to the previous question.
a) what is the NRP for scenario 1 in the question above?
b) what is the NRP for scenario 2 in the question above?
c) what is the ERP for scenario 2 in the question above?
d)Interpret the values you calculated for NRP in parts a and b. (Hint: what do these values of NRP mean for domestic producers of the final good?) Does the value for the NRP change between parts a and b? Why or why not?
e) Interpret the values you calculated for ERP in the question above and in part c. (Hint: what do these values of ERP mean for domestic producers of the final good?) Does the value for the ERP change between the question above and part c? Why or why not?
f) Is it possible to calculate a negative value for ERP? If yes, what is implied by an ERP value that is less than zero? (Hint: how would domestic producers of the final good react to a negative ERP?)