Cambridge International as and a level Economics Ebook

Infant industries: 
new industries that have a low output 
and a high average cost.
KEY TERM
Voluntary export restraint: 
a limit placed on imports 
reached with the agreement of the supplying country.
KEY TERM
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Cambridge International AS Level Economics
To protect declining industries
If declining (also called sunset) industries, which have lost 
their comparative advantage, go out of business quickly 
there may be a sudden and large rise in unemployment. If 
the industry is granted protection and that protection is 
gradually removed, unemployment might be avoided. As 
the industry reduces its output, some workers may retire 
and some leave for jobs in other industries.
Th
ere is again, however, a risk that the industry may 
resist reductions in the protection it receives. Th
is can lead 
to considerable ineffi
ciency. For example, a country’s steel 
industry may have lost its comparative advantage while 
its car industry does have a comparative advantage. If the 
government imposes tariff s on steel, it will disadvantage its 
car industry, which will now have to buy more expensive 
steel from domestic producers. Th
is will raise the car 
industry’s costs of production and so may lose it sales at 
home and abroad.
To protect strategic industries
Some governments seek to protect industries that 
produce products they regard as strategic, such as 
weapons, fuel and food. Th
ey may not want to be 
dependent on foreign supplies of these products. For 
example, a government may be worried that fi rms 
and households in its country would be seriously 
disadvantaged if fuel was cut off due to a trade dispute 
or a military confl ict. As a result it may protect some 
home industries even if they are relatively ineffi
cient.