Question

Suppose Vietnamese shoe manufacturers are selling shoes to the European Union countries for $10 a pair, but selling those same shoes for $15 a pair in Vietnam. If the cost of making each pair of shoes for the Vietnamese manufacturers is $12, then the European Union: O could accuse Vietnam of using the infant industry argument. definitely has a comparative advantage in producing shoes. could accuse Vietnam of using the national defense argument. could charge the Vietnamese shoe manufacturers with dumping.

Answer 1

Vietnam is not following infant industry arguement as they are not supporting their domestic industries in any form. Thus option A is not correct.

We cannot say anything definitely about the comparative advantage as to calculate comparative advantage we need opportunity cost of both countries for producing shoes which is not described here. So option B is incorrect.

National Defense arguement claims that countries providing goods at the cheaper / subsidies prices to their country people or maintaining a patriotic relationship. Thus, if this were the case, they would have provided the shoes at lower prices to Vietnam. Thus option C is incorrect.

European Union is getting benefit from the price they are being offered but they are at loss as Vietnam will create a big position in the European market and giving a loss to the producers to European market as they would their domestic market. Thus European Union would impose dumping on Vietnam though which they are selling shoes at cheaper prices in European market. Thus option D is correct.