THE nature of the relationship between world prices, tariff protection and domestic prices is of importance to economic theory and policy. For industrial policy, it would be useful to know just how much protected industries are able to take advantage of tariffs when they set their prices. The consequence of exchange rate changes for the domestic economy and the general question of how much autonomy an open economy can have in its macro-economic policy-making depend on how changes in the prices of imported goods are transmitted through the economy via domestic price and wage changes