Protection arguments

Protection arguments - This interference by governments to...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
This interference by governments to “manage” trade is called protection , and is employed with the intention of giving domestic producers an artificial advantage over foreign competitors. Thus, the main economic justification for protection is to assist domestic producers and protect them from overseas competition. A number of economic arguments have been put forward to justify government interference in managing trade. These justifications include: -Restraining monopolies by the prevention of dumping To clarify things, dumping occurs when foreign firms attempt to sell their goods in another country’s market at unrealistically low prices; that is, prices below the price charged in the home market. Dumping may be used to dispose of surplus or to establish a monopoly in another country. Dumping can harm local industry, as they struggle to compete with such foreign producers, and may be forced out of business, causing a loss of the country’s productive capacity and higher unemployment. Although this might mean lower prices for consumers, once the domestic producers have closed down, the foreign producer becomes a monopoly, and thus is able to raise prices at
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/17/2012 for the course BUSINESS BU2005 taught by Professor Smith during the Three '10 term at Bond College.

Page1 / 3

Protection arguments - This interference by governments to...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online