ECONOMICS
ECONOMIC DEVELOPMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It can encourage the government to become overly dependent on producers
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It can decrease average costs for producers
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It can cause producers to become less efficient
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There is no opportunity cost of government spending on subsidies
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Detailed explanation-1: -Protectionism has a negative impact on an economy’s productivity by discouraging competition, specialization, innovation and knowledge transfer. The economy is therefore less able to adapt to technological change or cyclical downturns.
Detailed explanation-2: -The main effect of protectionism is a decline in trade, higher prices for some goods, and a form of subsidy for protected industries. Some jobs in these industries may be saved, but jobs in other industries are likely to be lost.
Detailed explanation-3: -What makes protectionism so dangerous? First, it damages the economy. Protectionism reduces the incomes and choices of most people, and perhaps of all people in the long run. Second, it promotes the idea that trade (which is just voluntary exchange) is a war to be waged by government.
Detailed explanation-4: -Protectionist tariffs risk causing a loss of competition for domestic firms which eventually leads to lower productivity, less innovation and weaker competitiveness. Tariffs increase prices for consumers leading to higher inflation, reduced real incomes and an increased risk of poverty for poorer households.