Question

Australia has only one firm that makes aircraft. Without assistance from the government, that firm has lost most of its business to imports from the United States and Europe. Which policies would be most costly for the Australian nation as a whole, and which would be least costly?

Answer 1

The least costly option for the Australian government would be providing a loan to the aircraft maker without protecting against imports.

In this way, the aircraft would be responsable to invest the money from the loan in an efficient way in order to become more competitive. In either case, Australian consumers would benefit, either from more American imports if the Australian firm fails to invest the loan well, or from more Australian aircraft if if manages to become more competitive.

The costliest option would be imposing a tariff or an import quota. In either case, the government would be benefiting the Australian aircraft maker against the interests of Australian consumers, who would now be prevented from buying American aircraft either due to higher prices (the tariff), or by restrictions in the quantity they can purchase (the import quota).