When a tariff on imported inputs exceeds that on the finished good,
A) The nominal tariff rate on the finished product would tend to overstate its protective effect
B) The nominal tariff rate would tend to understate it's protective effect
C) It is impossible to determine the protective effect of a tariff
D) Tariff escalation occurs

Question

Quizplus · Accepted Answer

When the tariff on imported inputs is higher than that on the finished good, the nominal tariff rate on the finished product overstates its protective effect because the cost of inputs is already increased, reducing the effective protection for domestic producers of the finished good.

When a Tariff on Imported Inputs Exceeds That on the Finished