CA Foundation · Business Economics · International Trade
Which of the following is a commonly cited argument in favour of protection for a developing country like India?
The infant industry argument is the standard case for protection. New domestic industries face high initial costs and need temporary shelter from imports until they gain scale and experience. The other statements are wrong because protection generally raises consumer prices and reduces specialisation based on comparative advantage.
- AInfant industry argument: new domestic industries need temporary shelter until they achieve economies of scaleCorrect
- BProtection always lowers prices paid by domestic consumers
- CProtection improves allocative efficiency by encouraging specialisation by comparative advantage
- DProtection removes the need for any domestic competition policy
Explanation
The infant industry argument holds that young domestic industries with high initial costs need temporary protection until they become competitive. Protection usually raises, not lowers, consumer prices, and it weakens specialisation according to comparative advantage, so the other options are incorrect.
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