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Chapter 20: Q. 3 (page 489)

Explain how trade barriers save jobs in protected industries, but only by costing jobs in other industries.

Short Answer

Expert verified

Yes, trade barriers save jobs in protected industries but adversely affect cost in other industries.

Step by step solution

01

Step1. Introduction

Trade barriers refer to restrictions which are imposed in terms of tariffs, quotas, etc to protect the domestic producers from the foreign competition.

02

Step2. Explanation

Trade barriers increase the prices of the goods in the protected industries as they make imports expensive. If these goods are used as inputs for some other industries, their cost of production will increase leading to a rise in price. As a result, their sales will fall, further lowering the employment levels.

If the goods of the protected industry are consumer goods, the prices are high so their aggregate demand for all the goods shall be affected and hence fall. This shall further cut down employment rates.

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