CA Foundation · Business Economics · International Trade
Which of the following is the most commonly cited argument in favour of temporary protection for a country's 'infant industries'?
The infant industry argument holds that new domestic industries need temporary protection so they can build scale, learn and lower costs until they can compete with established foreign firms. It is a case for temporary, not permanent, protection, and it does not promise lower consumer prices.
- ANew domestic industries need time to achieve economies of scale and become competitive before facing foreign competitionCorrect
- BProtection permanently lowers the price paid by domestic consumers
- CProtection increases the variety of goods available to domestic consumers
- DProtection ensures that the country always has a trade surplus
Explanation
The infant industry argument says a young domestic industry has high initial costs and needs temporary shelter until it learns and reaches scale. Protection typically raises, not lowers, consumer prices, so the second option is wrong. Protection does not guarantee a trade surplus.
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