The long-run social benefits of infant industry protection are more likely to be realized if

Question

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If investors believe that tariff barriers are transitory (i.e. temporary), they are more likely to make long-term investments in the industry as they anticipate that the industry will become competitive enough to survive without protection in the future. This will lead to the development of a strong domestic industry which can compete on a level playing field in the international market even without government protection. On the other hand, permanent tariff barriers (choice A) may discourage domestic firms from investing in innovation and productivity improvements since they can rely on protection regardless of their efficiency. Increasing tariff barriers (choice C) may lead to retaliatory measures by trading partners and discourage foreign investment, while replacing tariff barriers with quotas (choice D) may not result in the desired benefits as firms may become complacent and not invest enough to achieve competitiveness.

The Long-Run Social Benefits of Infant Industry Protection Are More