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Chapter 33: Q.27 (page 804)

Why might a low-income country put up barriers to trade, such as tariffs on imports?

Short Answer

Expert verified

To protect domestic industries.

Step by step solution

01

Step 1. Definition

Trade barriers refer to the restrictions imposed by the government on the inflow of trade in the economy. Tariffs, quotas, and standards are some examples of trade barriers.

02

Step 2. Explanation 

The inflow of trade introduces competition in the market. Consumers are benefited from lower profits and greater variety in the market. However, trade can also be harmful as some industries might not be able to survive foreign competition. If such firms are driven out of the market it may lead to job loss.

So, low-income countries impose trade barriers to protect infant industries from foreign competition.

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Most popular questions from this chapter

You just overheard your friend say the following: “Poor countries like Malawi have no absolute advantages. They have poor soil, low investments in formal education and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade.” How would you respond?

From earlier chapters you will recall that technological change shifts the average cost curves. Draw a graph showing how technological change could influence intra-industry trade.

In World Trade Organization meetings, what do you think low-income countries lobby for?

What are the two main sources of economic gains from intra-industry trade?

Why might intra-industry trade seem surprising from the point of view of comparative advantage?
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