Question

Consider a new industry in Bloviation that has higher costs of production for microchips than established microchip producers in the rest of the world. The industry lobbies the legislators of the Bloviation Congress and suggest that if they are protected by a tariff they can learn better production methods and eventually become a competitive microchip producer. Identify the costs and benefits of adopting this policy. What considerations need to be evaluated in determining whether this would be a welfare-enhancing policy or not?

Answer 1

The Bolivian microchip producing industry can develop better in future if given a supporting hand by the Govt. in the form of tarrifs. With imposing tariffs on import of micro chips and low tariffs on exports would create a good market for the product and with high demand the prices would be absorbed by the market itself. Also, looking at the demand more producers would enter the market and look for better technologies and techniques to produce better and low cost microchips.

All these efforts woud lead tj developed and a good market for the product in the country. Hence the policy would prove welfare oriented for the country.