Evaluate the validity of the argument that a new industry in a nation needs protection from foreign competition if it is to prosper.
What will be an ideal response?
The infant-industry argument is based on the idea that new industries need time to become mature and sufficiently strong and large to compete with more mature industries from other nations. These new industries allegedly may need “temporary” protection to gain productive efficiency—to become low-cost producers of a product. A modern variant of this argument is a strategic trade policy that seeks protection for domestic industries involved in advanced technology.
The problems with this argument are several. First, it is difficult to determine which industries are the best to protect. Second, protection may persist after maturity is achieved in the industry. Third, direct subsidies for new industries are better than tariffs. Tariffs penalize consumers of those products, firms that import those products, and workers in those import industries. They also allocate resources. A better method of support would be subsidies to the emerging industries because they make the amount of the support explicit.
You might also like to view...
How is average variable cost calculated? If a firm has total variable costs of $19,200 when producing 575 units, what is the firm's average variable cost?
What will be an ideal response?
In the spot foreign exchange market,
A) only dollars, yen, and pounds may be traded. B) only dollars and yen may be traded. C) currencies or bank deposits are exchanged immediately. D) currencies or bank deposits are exchanged at a fixed date (or spot) in the future.
The difference between gross and net investment is referred to as:
a. a personal tax. b. the income earned but not received. c. a capital consumption allowance. d. an indirect business tax. e. a statistical discrepancy.
Economies of scale
A. do not arise in oligopolistic industries. B. can exist but fail to create barriers to entry in oligopolistic industries. C. can exist but are rare in oligopolistic industries. D. are commonplace and often a barrier to entry in oligopolistic industries.