Re: Defense Department analysts worry that the ability of the

Hi TGC,

First of all, we need to understand the logic of quotas. The reason for setting import quotas is to protect internal industries from competition of foreign competitors.
There are two cases:
(1) No quotas: Internal industries will have difficulties because foreign competitors can sell products without any restrictions.
(2) Have quotas: Internal industries will NOT have difficulties because there are some limitations for foreign competitors.

This is resolve the paradox question, so what is paradox here? The paradox is: If there are import quotas, Machine Tool Industry (MTI) should be protected and will grow. But why MTI still maintains that the import quotas policies do not help?

The reason is:
Machine Tool Industry products = Defense products + Other products.

MTI will have difficulties if
(1) Sales of Defense products decline
(2) Sales of Other products decline
(3) Sale of both Defense products and Other products decline

In this question, MTI asks for help because the industry's sales of other products account for bigger portion of the industry's sales. BUT this segment does not have protection from government ==> MTI industry cannot grow ==> It will affect the ability of the United States to wage a prolonged war.

C says exactly the same reason. Hence, it is correct.

Hope my post helps you.