Question

Suppose Indian Farmers sell wheat at Rs. 50 per kg and the international price for wheat is Rs. 40 per kg. What is the minimum rate of import duty the Government of India must impose on imported wheat so that it does not adversely affect Indian farmers in the domestic market?
A. $10\% $
B. $20\% $
C. $25\% $
D. $30\% $

Answer 1

Hint: First, assume the import duty tax imposed by the Government of India. After that find the tax imposed. Then find the international price after the tax and equate it to the Indian farmer selling price. Now, do the calculation to get the desired result.

Complete step-by-step solution:
Given: - Indian Farmers sell wheat at Rs. 50 per kg
The international price for wheat is Rs. 40 per kg.
Let the import duty tax imposed by the Government of India be $x\% $.
Then the tax imposed is given by,
$ \Rightarrow \dfrac{{40}}{{100}}x$
The international price after the tax will be,
$ \Rightarrow 40 + \dfrac{{40}}{{100}}x$
Now equate it to the Indian farmer selling price, so that it does not adversely affect Indian farmers in the domestic market,
$ \Rightarrow 40 + \dfrac{{40}}{{100}}x = 50$
Move 40 to the left side,
$ \Rightarrow \dfrac{{40}}{{100}}x = 50 - 40$
Subtract the value on the right side and cancel out the common terms on the left side,
$ \Rightarrow \dfrac{2}{5}x = 10$
Multiply both sides by $\dfrac{5}{2}$,
$ \Rightarrow x = 10 \times \dfrac{5}{2}$
Cancel out the common terms and multiply the remaining value,
$\therefore x = 25$
So, the import duty tax imposed by the Government of India is 25%.

Hence, option (C) is the correct answer.

Note: Import duty is a tax collected on imports and some exports by a country's customs authorities. A good's value will usually dictate the import duty. Depending on the context, import duty may also be known as a customs duty, tariff, import tax, or import tariff.
Import duties have two distinct purposes: raise income for the local government and to give a market advantage to locally grown or produced goods that are not subject to import duties.