Free trade

Question 1

What is free trade?
and how does it shield domestic producers from foreign competitors.

Answer 1

A situation where governments impose no barriers to trade that restrict free exchange of g/s.
2. trade allows countries to obtain g/s that they cannot produce themselves.

Question 2

name 2 advantages of free trade.

Answer 2

1. comparative advantage allows economies to specialise in the production of g/s where they are the most efficient.
2. Increased living standards due to lower consumer prices and more choice

BONUS-Greater specialisation = economies of scale = more efficient

Question 3

list 2 disadvantages of free trade

Answer 3

1.Short term unemployment (structural) as domestic economy adapts to competing with foreign producers.
2.(infant industries)Hard to establish new businesses/industries if they aren’t protected from foreign competitors

Question 4

what is comparative advantage and what is absolute advantage?

Answer 4

Absoulute advantage-when one economy can prodcue more of a good compared to another economy given the same amount of resources.
comparative advantage- eco principle that economies should specialise in areas of production in which there is the lowest opportunity cost.