Chapter 15.1

Question 1

Arguments for trade protection

Answer 1

Infant industry argument
National security
Health, safety and environmental standards
Efforts of a developing country to diversify

Question 2

Infant industry

Answer 2

A new domestic industry that has not had time to establish itself and achieve efficiencies in production so may be unable to compete with more mature competitor firms from abroad

Question 3

Diversification

Answer 3

Change involving greater variety

Question 4

Economically Least Developed Countries (ELDCs)

Answer 4

The group of poorest countries in the world, that are very highly specialized in producing and exporting only a few primary commodities

Question 5

Questionable arguments for trade protection

Answer 5

Anti-dumping
Unfair competition
Correcting a balance of payment deficits
Tariffs as a source of government revenue
Protection of domestic jobs

Question 6

Anti-dumping

Answer 6

The argument that a country should have the right to impose tariffs and quotas in order to limit imports of dumped goods

Question 7

Unfair competition

Answer 7

Practices that countries may use to gain a competitive advantage over other countries in order to unfairly increase their exports at the expense of other countries

Question 8

Arguments against trade protection

Answer 8

Producers and workers are the only stakeholders who gain from all types of trade protection
Gain of producers has a cost in terms of higher costs of production and reduced efficiency
Consumers lose in most cases
Income distribution in most cases worsens
Foreign producers are worse off
Domestic and global allocation lose
May have negative impacts on price level, real GDP and employment
May have negative effects on a country’s export competitiveness
May give rise to trade wars
Creates a potential for corruption