CA Foundation · Business Economics · International Trade
India's Mehta Textiles imports cotton yarn with a landed price of ₹400 per kg. The government imposes an ad valorem import duty of 15%. Domestic producers had been selling at ₹440 per kg. Assuming domestic price rises to match the import price including duty, by how much will the domestic price rise?
The domestic price rises by ₹20 per kg. The duty of 15% on ₹400 is ₹60, making the imported price ₹460, and domestic producers matching it move up from ₹440 to ₹460, so the increase is only ₹20.
- A₹20 per kgCorrect
- B₹60 per kg
- C₹40 per kg
- D₹15 per kg
Explanation
Duty = 15% of ₹400 = ₹60, so the import price becomes ₹460. Domestic price rises from ₹440 to ₹460, an increase of ₹20. The figure ₹60 mistakenly treats the whole duty as the domestic price increase.
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