Suppose the Government of a Small Country Has to Frame

question 37

Essay

Suppose the government of a small country has to frame a policy which would promote the level of domestic production or employment of import-competing industries. It is left with a choice of either imposing a tariff on the foreign goods or providing production subsidies to the domestic firms. Which policy will the government choose and why? Explain with a diagram. Is there a particular principle that can guide the government's decision? If so, name and state it.

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Definitions:

Net Income

The amount of money a company retains after subtracting all expenses and taxes from its gross revenue.

Retained Earnings

The portion of net income left over for the business after it has paid out dividends to its shareholders.

Fiscal Year

A 12-month period used for accounting purposes and preparing financial statements.

Depreciation Expense

The allocation of the cost of tangible assets over their useful lives, reflecting the reduction in value over time.