CA Foundation · Business Economics · International Trade
Which of the following best captures the 'infant industry' argument for protection?
The infant industry argument says that a newly established domestic industry may need temporary protection from foreign competition, such as tariffs or quotas, until it achieves economies of scale and experience. After it matures and becomes competitive, the protection should be withdrawn.
- ATemporary protection helps a new domestic industry become competitiveCorrect
- BProtection is needed permanently for all old and declining industries
- CImports should be banned to raise the exchange rate
- DTariffs raise efficiency by removing competition from domestic firms
Explanation
The infant industry argument holds that a new industry with potential cost advantages needs temporary protection, such as tariffs or quotas, until it achieves scale and learning-by-doing and can compete. It is a temporary measure, so option 2 is wrong.
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