Which of the following is a potential drawback of government intervention in international trade?

• A. It can lead to inefficiency and higher prices for consumers.
• B. It always increases the competitiveness of domestic industries.
• C. It guarantees a balanced trade surplus.
• D. It eliminates the need for international cooperation.

Answer: (A)

Verified step by step guidance

1. Understand the role of government intervention in international trade, which typically includes tariffs, quotas, subsidies, and regulations aimed at protecting domestic industries or achieving economic goals.
2. Recognize that while government intervention can protect domestic industries, it may also distort market outcomes by restricting free trade, which can reduce overall economic efficiency.
3. Analyze how such interventions can lead to higher prices for consumers because tariffs or quotas limit the supply of foreign goods, reducing competition and allowing domestic producers to charge more.
4. Consider that government intervention does not always increase competitiveness; sometimes it can create dependency on protection and reduce incentives for innovation and efficiency.
5. Conclude that the main potential drawback is inefficiency and higher consumer prices, rather than guaranteed trade surpluses or elimination of the need for international cooperation.