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March 2, 2015

Homework Help: economics. urgent

Posted by gosh on Wednesday, September 3, 2008 at 3:31am.

Assuming that shoes have a world price of US$60 a pair, that the EU has a 45%
ad valorem import duty on footwear which applies to all types of footwear and
an Italian company is proposing a project to substitute 150,000 pairs of
imported shoes by domestically produced shoes. The annual cost of the project
(operating cost plus annual equivalent capital cost) at both market and
efficiency prices are $9.4 millions. Apart from the tariff there are no other
distortions to the EU domestic price of shoes. Calculate the net annual benefit
of the project:
a. At market prices. [2 marks]
b. At efficiency prices. [2 marks]

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