Answer to Question 1
Policymakers are faced with several problems when trying to administer import controls. First, most of the time such controls exact a huge price from domestic consumers. Even though the wide distribution of the burden among many consumers may result in a less obvious burden, the social cost of these controls may be damaging to the economy and subject to severe attack by individuals. A second major problem resulting from import controls is the downstream change in import composition that results from these controls. Initially narrowly defined protectionist measures may have to snowball in order to protect one downstream industry after another. A final major problem that confronts the policymaker is that of efficiency. Import controls, which are frequently designed to provide breathing room to a domestic industry either to grow or to recapture its competitive position, often turn out not to work. Rather than improve the productivity of an industry, such controls provide it with a level of safety and a cushion of increased income yet let the drive for technological advancement fall behind. Alternatively, supply may respond to artificial stimulation and grow far beyond demand.
Answer to Question 2
B
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