Dalton, Georgia, a town with a population less than 35,000, has developed into a leading producer of carpets, despite its small size. Some government officials argue that the success achieved by firms in Dalton in developing a comparative advantage in
carpet making because of external economies can be used to justify trade barriers as a means to protect an "infant industry." After an infant industry gains experience it can compete in international markets and the trade barriers can be removed. What objections do economists make to this argument in favor of trade barriers?
What will be an ideal response?
Many economists believe that this is the most persuasive argument for protection but experience teaches us that tariffs and quotas can stifle the incentive firms have to become more efficient producers, which is the reason for imposing trade restrictions in the first place. Few firms volunteer to have trade restrictions removed once they have been established.
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At the output where the combined amounts of consumer and producer surplus are largest
A. marginal benefit exceeds marginal cost by the greatest amount. B. consumer surplus exceeds producer surplus by the greatest amount. C. the areas of consumer and producer surplus necessarily are equal. D. the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
In the above figure, curve D slopes downward because
A) average fixed costs decrease as output increases. B) all costs decrease as output increases. C) there are diminishing returns. D) there are decreasing marginal costs.
The reason that the multiplier is smaller if there are variable taxes is that
a. taxes add to government spending, which increases income. b. people get angry about taxes and decide to work less. c. tax increases shift the expenditure line upward. d. part of an increase in income is taken away in taxes.
When making a purchase, it is least costly to
a. pay cash. b. put it on a credit card and pay off the balance plus interest in one year. c. put it on a credit card and pay off the balance at the end of the month before interest accrues. d. it doesn't matter because all three have the same present value.