Paper 3 · International Trade
A problem of free trade for a developing country is that infant industries
Aare still small and high cost, so they close before they can ever grow
Bare obliged to export the whole of their output at world market prices
Cmust pay customs duty on the goods they sell in their own home market
Dgrow so quickly that they exhaust the country's supply of skilled labour
Explanation: A new firm has not yet reached the scale at which its average costs fall, so its prices are higher than those of large established foreign producers. Under free trade it loses the home market and closes down before it can reach the size that would have made it competitive.
Derived from ZIMSEC Economics 4050/3 Paper 3, June 2023, Q3