28.

Infant industries
1. Missing words
The term infant industry refers to a number of newly-established firms within an economy. These firms are likely to
be operating on a small scale presently but have the potential to expand significantly. In the short term, it is unlikely
that these firms will be able to compete against _________________ firms operating in the same industry in other
countries. This is because low levels of production will result in relatively high unit costs. If there are significant
economies of scale to be achieved, foreign firms may have already reached __________________ output and,
therefore, be more competitive. The infant industry may, however, develop a _________________ advantage in
the long term, if they are protected from competition in the short term and allowed to grow to the point where
they have achieved a ________________cost structure. One of the main reasons given for the continuing use of
trade __________________ by developing countries is to protect young industries until they reach a point where
they can compete on an international scale.
Hint: words from – barriers, capacity, comparative, competitive, older
2. Key terms:
Which key terms are being described by the definitions below?
2.1 A situation where one country is able to produce a good or service more cheaply, relative to other domestically
produced goods, than other countries: _____________ ____________
2.2 Where a firm’s unit or average costs of production fall as its scale of production increases:
_________________ ___ ___________
2.3 Any measure designed to reduce the level of trade between countries:
______________ ___________________
2.4 The cost of producing one item of production, also known as average costs:
______________ ______________
3. Identify three:
3.1 Identify three reasons why firms within an infant industry may experience relatively high unit costs:

______________________________________________________________________________________

______________________________________________________________________________________

______________________________________________________________________________________
3.2 Identify three methods that a government could use to protect infant industries from international competition:

______________________________________________________________________________________

______________________________________________________________________________________

______________________________________________________________________________________
4. Infant industries - true or false (justify your answer for an additional mark):
4.1 An infant industry refers to an older established industry within an advanced industrial economy which is
protected against foreign competition by the use of trade barriers: True / False

Why? _________________________________________________________________________________
4.2 Firms used to being protected behind the ‘infant industry’ walls will fight hard to stop the government from ever
removing those walls: True / False

Why? _________________________________________________________________________________
4.3 The benefits resulting from using trade barriers to protect an infant industry depend on the length of time
protectionist measures are used: True / False

Why? _________________________________________________________________________________

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28. ANSWERS – Infant industries

1. older … capacity … comparative … competitive … barriers

2.1 Comparative advantage

2.2 Economies of scale

2.3 Trade barriers

2.4 Unit costs

3.1 High costs of research and development for new products and processes spread over a low level of output; high
marketing costs spread over a low level of output; limited opportunities for buying in bulk; high costs of finance
because of the risk involved.

3.2 Tariffs, quotas, subsidies for research and development; non-competitive purchasing of domestically produced
goods and services by government

4.1 FALSE – this kind of industry is known as a sunset industry, although protectionist measures may be used to
postpone its decline

4.2 TRUE – Just as M.P.s may get used to fat expenses, companies get used to having government help behind them.

4.3 TRUE – any cost reductions from achieving economies of scale may be off-set if the absence of competition leads
to inefficiency.

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