The Japanese economic model created strong domestic industries through subsidies from its Ministry of Trade and by closing off competitive foreign firms to its domestic market. This strategy promised to help economic growth by incubating domestic industries. New Japanese industries could count on a known local demand and would be protected from competition by tariffs and other barriers. The program could reduce the amount of imports and therefore improve the nation's balance of trade.
Which of the following, based on the passage above, is a weakness in this economic strategy?
A) A protectionist policy will create animosity among other nations.
B) Fast growth of small industries will create a class of millionaires and increase the inequality of income.
C) Subsidies and import constraints keep domestic prices high and impose a burden on consumers.
D) Quotas are more regressive than tariffs.
E) The demand for the products made by the incubated industries would not be known.
I am not able to understand how come answer is C rather than A. Waiting for your valuable inputs. Regards, Fame
This is a LSAT questions, and these are typically much harder than GMAT CR questions.
According to the argument, Japan has a protectionist policy --- by blocking imports, they hope to give domestic industries a boost. This is an economic strategy
--- that is to say, a strategy designed to reach particular economic goals. (A)
might be true. It's certainly true that, if Japan is blocking other products, other nations will not be happy about this. There are many many examples of some countries doing things in their own self-interest that other countries don't like. If this is where it ends --- folks in, say, America or Germany saying, "I don't like the protectionist policies of Japan
!" --- well, it's not a nice thing to do, to upset other people, so as a moral or spiritual policy, this might not be a success. But, at the very practical level of economics, if some folks in other countries don't like things, that doesn't necessarily mean they will do anything economic about it. Animosity alone does not necessarily have any economic consequences.
Of course, we could imagine that other nations that have animosity against these Japanese policy might take countermoves (boycott of Japanese good, counter tariffs, etc. etc.) but that's a HUGE assumption that extends well beyond what (A)
literally says. (A)
just says other countries have animosity --- Japan, via this policy, has made other countries upset. Not a nice thing to do, but not necessarily anything that will have any economic consequences. That's why (A)
is not a very cogent answer.
Once again, this is why it's crucial to read the WSJ & The Economist
, to develop a real-world sense of what does matter and what doesn't matter. If you don't have this real world sense, a whole bunch of things may seem like they should make a difference, when in fact, they don't where the rubber meets the road.
Does this make sense?
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