ECONOMICS
ECONOMIC DEVELOPMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Providing subsidies allows producers in infant industries to benefit from diseconomies of scale
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Providing subsidies increases profits for producers in infant industries
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Decreasing tariffs to make imports cheaper
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Providing subsidies to consumers
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Detailed explanation-1: -The main rationale behind the infant industry argument is that new industries require protection because they lack the economies of scale that competitors possess. Infant industries lack the capabilities to leverage their existing production and require protection until they can acquire similar economies of scale.
Detailed explanation-2: -3.1 How trade protectionism affects the economy A rise in the cost of imported goods due to tariffs will lower real incomes and in turn weigh on domestic demand growth. Some domestic production which uses imports as inputs might also be constrained if trade barriers cause supply-chain disruption.
Detailed explanation-3: -The infant-industry theory states that new industries in developing countries need protection against competitive pressures until they mature. This theory, first developed in the early 19th century by Alexander Hamilton and Friedrich List, is often a justification for protectionist trade policies.
Detailed explanation-4: -Protectionism is simply a method of requiring consumers to subsidize producers. The subsidy is indirect, since consumers pay for it through higher prices, rather than a direct government subsidy paid with money collected from taxpayers. However, protectionism works like a subsidy, nonetheless.