Answer to Question 1
B
Answer to Question 2
The two basic approaches to government policy are to alter conditions that will affect industry in generala non-strategic approachand to alter conditions that will affect a targeted industrya strategic approach. Regardless of whether a government takes a general or specific approach, it may alter the competitive positions of specific companies and production locations.
The first approach means altering conditions that affect factor proportions, efficiency, and innovation. A country may upgrade production factors by improving human skills through education, providing infrastructure, promoting a highly competitive environment so that companies must make improvements, and inducing consumers to demand a higher quality of products and services.
The second approach is to target specific industries. This approach has usually resulted in only small payoffs, largely because governments find it difficult to identify and target the right industries. Moreover, too many countries may identify the same industries.
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