Management Notes

# Management Notes

Reference Notes for Management

# If no imported inputs (hard-disk drive) go into the domestic production of a final product (desktop computer) then the

## If no imported inputs (hard-disk drive) go into the domestic production of a final product (desktop computer) then the

Options:

 a. nominal tariff rate on the final product equals the effective tariff rate on the product b. nominal tariff rate on the final product is greater than the effective tariff rate on the product c. nominal tariff rate on the final product is less than the effective tariff rate on the final product d. none of the above

a. nominal tariff rate on the final product equals the effective tariff rate on the product

We’re discussing a scenario where a final product (a desktop computer) is produced domestically without any imported inputs (like a hard-disk drive). So, all the components used in making the desktop computer are sourced or produced within the country.

Answer Explanation (Option a):a. nominal tariff rate on the final product equals the effective tariff rate on the product

The nominal tariff rate refers to the stated or official rate of a tariff, while the effective tariff rate is the actual rate paid, accounting for any exemptions, rebates, or special conditions.

In this scenario, because no imported inputs are used in the domestic production of the final product (desktop computer), the nominal tariff rate would indeed equal the effective tariff rate on the product. Since all the components are sourced domestically, there wouldn’t be any differentiation between the stated tariff rate and the actual tariff paid.

Explaining Why Other Options Are Not Correct:

Option b: “Nominal tariff rate on the final product is greater than the effective tariff rate on the product”

This option suggests that the officially stated tariff rate (nominal) is higher than the actual tariff paid (effective) on the final product. However, when all components used in producing the desktop computer are sourced domestically, without any imported inputs, there are no additional tariffs or hidden costs.

Therefore, the nominal tariff rate and the effective tariff rate would align and be equal since there are no imported parts to attract additional tariffs.

Option c: “Nominal tariff rate on the final product is less than the effective tariff rate on the final product”

This option implies that the officially declared tariff rate is lower than the actual tariff paid on the final product. However, in a scenario where all components used in the domestic production of the desktop computer are sourced domestically, there are no hidden tariffs or additional charges beyond what is officially declared.

Therefore, the effective tariff rate would not be higher than the nominal rate, as there are no imported inputs that would trigger extra tariffs.

Option d: “None of the above”

This option suggests that none of the previous options accurately describes the relationship between the nominal and effective tariff rates. However, given the specific scenario where no imported inputs are utilized in the domestic production of the final product, the accurate choice is indeed option a.

It’s the only choice that reflects the equality between the nominal tariff rate and the effective tariff rate due to the absence of imported inputs that could lead to discrepancies between the two rates.

In a nutshell, when all components used in producing the final product (the desktop computer in this case) are domestically sourced and no imported inputs are incorporated, the nominal tariff rate and the effective tariff rate would align and be equal.

This scenario eliminates any differences between the stated tariff rate and the actual tariff paid, ensuring that the nominal tariff rate equals the effective tariff rate.

The absence of imported inputs essentially removes the potential for discrepancies or additional tariffs, resulting in the nominal and effective rates being the same in this context.

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