Question

Explain why economists argue that protectionist policies lead to the misallocation of resources in the domestic economy.

Answer 1

Economists argue, because when protectionist policies are implemented, then some of the industries get protection and they put higher prices due to their inefficient operations. It makes consumers to pay more and spend less on other goods and services. As a result, demand for the other goods and services decreases and affected firms start laying of the workers and unemployment increase. So, due to the protectionist policies, few industries get higher spending upon their products and other industries suffer.It reflects misallocation of resources and puts economy as a whole to suffer.