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Chapter 21: Q.22 (page 522)

How does protectionism affect the price of the

protected good in the domestic market?

Short Answer

Expert verified

Protectionism affects the price of the protected good in the domestic market through increased prices.

Step by step solution

01

Step 1. Meaning 

Protectionismis a trade policy that allows the government of a country to impose tariffs on foreign goods and services to protect or boost the domestic production of goods and services.

02

Step 2. Explanation

When government restricts foreign goods' flow into the market, due to the tariffs the domestic market increases the prices of goods & consumer has limited choices there. Free trade increase the choices available to the consumers. Competiton also contributes to lower prices. But this competition is absent in case of protectionism.

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Most popular questions from this chapter

Explain how a subsidy on agricultural goods like sugar adversely affects the income of foreign producers of imported sugar.

Does international trade, taken as a whole, increase the total number of jobs, decrease the total number of jobs, or leave the total number of jobs about the same?

Why might a tax on domestic consumption of

resources critical for national security be a more

efficient approach than barriers to imports?

Economists sometimes say that protectionism is

the 鈥渟econd-best鈥� choice for dealing with any particular problem. What they mean is that there is often a policy choice that is more direct or effective for dealing with the problem鈥攁 choice that would still allow the benefits of trade to occur. Explain why protectionism is a 鈥渟econd-best鈥� choice for:

a. helping workers as a group

b. helping industries stay strong

c. protecting the environment

d. advancing national defense

What are the gains from competition?
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