1. Commonwealth Government is in a process of liberalising the motorcar industry. The records show that the cost of the imported input of a motor car is $15 000 and the price of a motor car is $30 000 in the absence of tariffs. The ratio of the cost of the imported input to the price of a motor car in the absence of tariffs is 0.5.

a)Find the effective rate of protection if the nominal tariff rate on the imported input is 0, 0.05 and 0.1. Assume the nominal tariff rate on the motor car import is 0.1. Interpret your results

b)Find the effective rate of protection if the nominal tariff rate on the car import is 0, 0.04 and 0.05. Assume the nominal tariff rate on the imported import remained as 0.05. Interpret your results.

2.India joined Indonesia in a free trade area. Before the union, India imports 250 thousand traveling bags from Malaysia at $150 and adds a tariff of $50 on each traveling bags. The price of a traveling bag in Indonesia is $175.

a)Compute the trade diversion cost

b)How much extra imports would have to be generated in Australia to offset this trade diversion cost.

c)Briefly explain the concept 'trade deflection' with a hypothetical example

d)Briefly explain the fact that 'EPZ are enclaves within each host country'