CA Foundation · Business Economics · International Trade
Which of the following is the most commonly cited argument for a temporary tariff, made for a newly established domestic industry?
The infant industry argument supports a temporary tariff to protect a newly established domestic industry from established foreign competitors until it gains experience and economies of scale and can compete on its own.
- AThe infant industry argument, to shield it until it achieves economies of scaleCorrect
- BThe comparative cost argument, to encourage imports
- CThe free rider argument, to cut consumer prices
- DThe terms of trade argument, to lower export prices
Explanation
The infant industry argument says new domestic firms cannot compete with established foreign firms, so temporary protection lets them grow and reach scale and efficiency. The other options do not describe a protection rationale.
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