Free trade and Comparative Advantage

Question 1

What are some characteristics of free trade?

Answer 1

• No restrictions/ discrimination
• No tariffs/ quotas
• Liberalisation
• Competition
  -Global sourcing
• Choice

Question 2

What are some advantages of free trade?

Answer 2

• Greater economic growth as a result of higher AD
• Greater competition should lead to innovation and lower prices
• Access goods/ services that aren’t available in the domestic economy
• Chance to gain inwards FDI leading to SR and LR growth
• More efficient use of resources due to specialisation
• Chance to gain from economies of scale if markets are bigger
• Can provide important foreign currency reserves

Question 3

What does greater economic growth depend on? (as an advantage of free trade)

Answer 3

• Depends on if they have positive net trade