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Econ1101 Hand In Questions 1 Essay

700 words - 3 pages

Hand in Question 1
1. Why did the Australian government give protection to the Australian car industry after World War 2?

The Australian government gave protection to the car industry after World War 2 as the government thought that the car industry, an infant industry, was critical to the future needs of the Australian defence force. Protection could, for example, increase economies of scale to promote efficiency, decrease costs and allow the industry to become internationally competitive in building vehicle engines and producing motor vehicle parts after the war. Also, cars were symbolic of Australia’s ability to become a fully industrialised developed country as cars represented ...view middle of the document...

This allows the economy to take advantage of efficiencies from economies of scale and increased output, while international trade increases the size of the firm’s market which leads to decreased average costs and increase in productivity. Furthermore, production efficiencies will occur as the efficiency of resource allocation will be improved, which leads to increased productivity and total domestic output of goods and services, and the increased competition will allow for innovative production methods, new technology and marketing and distribution methods. However, the shutting down of Holden will induce short-term structural unemployment as the workers will have to find new jobs by undergoing training and reskilling programs.

3. Why has the Australian government stopped giving protection to the car industry?

The Australian government has stopped giving protection to the car industry as the protected car industry, an infant industry, became inefficient as protection in Australia usually becomes permanent. Also the government realised that protection was counter-productive in terms of helping the...

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