(A) Under What Circumstances Is the Effective Rate of Protection

question 27

Essay

(a) Under what circumstances is the effective rate of protection of a tariff greater than the nominal rate?
(b) Why is this a concern for developing countries?

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Definitions:

Variance of Earnings

A statistical measure that represents the degree of variation or dispersion of a company's earnings over a specified period.

Standard Deviation

A statistical measure that quantifies the amount of variation or dispersion of a set of data values, often used to measure the volatility of financial returns.

Diversification

An investment strategy that involves spreading investments among various financial instruments, industries, and other categories to reduce exposure to any one particular asset or risk.

Market Portfolio

A theoretical portfolio of investments that contains all available assets in the market, representing the entire market.