"It is good to protect domestic production for a nation as a whole and not just for workers and firms in the industry receiving protection." Give three scenarios to justify this statement.
What will be an ideal response?
POSSIBLE RESPONSE: The case for protection can be made when there is a discrepancy between social and private benefits or cost from an activity. Protection of domestic production might be desirable in situations in which domestic production creates positive external effects such as the following:
The production in this industry creates know-how or management techniques that can be used in other industries. Workers in the industry are acquiring skills and attitudes that can be useful in other industries. The country and its citizens can take pride from producing the product locally, or the product is essential to national defense.
Protecting domestic production can also be beneficial in the following circumstances:
It is expected that firms in the industry can eventually find ways to lower costs (or increase product quality), after they have been producing for a while (the infant industry argument). Workers face high costs if they are forced to switch to jobs in a different industries.
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When someone says positive externalities coming from education justify subsidization of education, they are saying
A) education must be uniform in a democratic society. B) government ought to be the exclusive provider of at least elementary education. C) many people cannot afford to educate their children. D) private schools tend to be inefficient. E) students capture only part of the benefits from attending school.
You decide whether to eat one more slice of cheesecake based on how hungry you feel. Which economic principle does this statement BEST represent?
a. The true cost of something is its opportunity cost. b. People respond to incentives, exploiting opportunities to make themselves better off. c. Choices are necessary because resources are scarce. d. “How much” is a decision at the margin.