Which of the following statements is TRUE?
A) The infant-industry argument is valid only if the benefits of learning-by-doing in the infant industry spill over to other parts of the economy.
B) A subsidy to an infant industry is a more efficient way to protect it from foreign competition than a tariff on the competing foreign goods.
C) Both statements are true.
D) Neither of the statements is true.

Question

Quizplus · Accepted Answer

Both statements are true. The infant-industry argument suggests that protecting young industries can be beneficial if there are significant learning-by-doing effects that spill over to other parts of the economy. A subsidy is generally considered more efficient than a tariff for protecting an infant industry because it directly supports the industry without distorting prices for consumers.

Which of the Following Statements Is TRUE