The Japanese economic model created strong domestic industries through

Question

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.

gmatjon · Answer

I am not sure, whether it is right GMAT question, because it looks like you need to know some economics in order to answer question. 
IMO C.

gmattokyo · Answer

Got it from an old practice test, not official GMAT. So 'agree with you that to infer C as a weakness in the strategy is not direct from the passage (economics background will help)...

Close foreign competition=>known local demand and protection by barriers=>reduce imports and INCREASE TRADE BALANCE.  Nowhere there is any mention about burden on consumer/increased goods prices etc.

So we have to infer from the available choices. E and D can be ruled out. B doesn't seem to have any direct relation either. 
I chose A because at least it talks about the possibility that TRADE BALANCE may get impacted if other nations stop importing from Japan... but the correct answer is C

Thanks for ur inputs.

hien48 · Answer

E is my answer.

We could interprete the stem in another way:: the argument is flawed on which of following reasons?

Consider C and E:
- C: burden on consumers probably curbs the domestic goods consumption, but what will happen if the tariff and other barriers make import goods even more expensive? --> import is still at low level, balance of trade is still sound.

- E: this is the weakness of argument

amp0201 · Answer

A) A protectionist policy will create animosity among other nations.
  -- It might create or might not create and plus it not connected to the Japanese economy. Hence A is not a correct answer choice.

B) Fast growth of small industries will create a class of millionaires and increase the inequality of income.
  -- Irrelevant. Hence cannot be a correct answer choice.

C) Subsidies and import constraints keep domestic prices high and impose a burden on consumers.
 This is a correct answer choice. Premise states that domestic industries will help grow economy. However if subsidies and import constraints keep the domestic prices higher, eventually lead to increase in prices and destabilize the economy.

D) Quotas are more regressive than tariffs.
 Neutral statement. Hence cannot be a correct answer choice.

E) The demand for the products made by the incubated industries would not be known.
 Might be might not be. Hence cannot be a correct answer choice.

Thank You.

Thanks,
Akhil M.Parekh

PTK · Answer

Clearly C.

E is wrong, beacause it is stating that "The  demand   for the products  made by the incubated industries  would not be known .

Just respond to the following questions: 
Does the Goverment (ministry of trade , whatever) is interested in promoting incubated industries? yes, it does, see stimuli (is  closing off   competitive  foreign firms ). Agree??
If interested, Will the Gov support promotion campaigns of goods produced by local firms? - of course, logically yes-

Does the Goverment (ministry of trade , whatever) is interested in promoting incubated industries? yes, it does, because it according to smimuli "is closing off  competitive foreign firms   to its domestic market." Key words are "competitive and is closing off". 
If foreign firms are competitive and if Gov continues to close off acess to local market, will this create market inefficiences which may result in "keep domestic prices high and impose a burden on consumers" - clearly yes.

mikemcgarry · Answer

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? Mike :-)

fahmed1990 · Answer

Weakness in this economic strategy

A) A protectionist policy will create animosity among other nations.
  going the different angle, no relation with Japan Economic strategy  
B) Fast growth of small industries will  create  a class of millionaires and increase the inequality of income.
 it support the strategy.  
C) Subsidies and import  constraints  keep domestic  prices high and impose a burden on consumers .
 Every country's government work to people well being. this sentence weaken the strategy  
D) Quotas are more regressive than tariffs.
  strengthen the strategy   
E) The demand for the products made by the incubated industries would not be known. 
  nothing discuss about this. goes to different way

So, (C) is the best choice

WarriorWithin · Answer

New Japanese industries could count on a known local demand and would be protected from competition by tariffs and other barriers.

--> What if they are not able to identify the demand - how they are going to balance the trade?
It will break down the conclusion. I chose E for this reason.

Please assist.

KeyurJoshi · Answer

Before we get into the question,
Consider Wikipedia Definition of "balance of trade" :  The balance of trade, commercial balance, or net exports, is the difference between the monetary value of a nation's exports and imports over a certain time period.

Conclusion: The program could reduce the amount of imports and therefore improve the nation's balance of trade.

A) A protectionist policy will create animosity among other nations. -  Irrelevant .
B) Fast growth of small industries will create a class of millionaires and increase the inequality of income. -  Okay, but does this worsen nation's balance of trade? We need to make further assumption for this to be true.

C) Subsidies and import constraints keep domestic prices high and impose a burden on consumers. -  According to the definition above, This choice shows that it will hurt nations trade balance.

(I know I'm overextending the argument but
Lets say, raw material in US costs way more than it does in China and US restricts import of raw material from China 
If US plans to use its own raw material to manufacture products then costs will be high, thereby increasing prices.
Completely shutting down imports may hurt nations economy.)

D) Quotas are more regressive than tariffs. -  Quotas are irrelevant 
E) The demand for the products made by the incubated industries would not be known. -  Knowing or not knowing the demand for the products may not impair nations trade balance.

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The Japanese economic model created strong domestic industries through

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