TERM 2 - Unit 5.4 - Free Trade

Question 1

What is FREE TRADE?

Answer 1

Goods/Services are being are being freely exchanged between countries, with no barriers from governments

Question 2

Name a few BENEFITS of free trade

Answer 2

+ Specialisation and efficiency
+ Economies of scale
+ Consumer choice
+ Innovation
+ Implementing best prices
+ Welfare gains for society
+ Improved international relations

Question 3

What does ‘Specialisation and efficiency’ mean?

Answer 3

This is when a country FOCUSES at a product that is best for them to be producing. Then they:
- specialist in making that product,
- improve productivity and
- efficiency

Products are made at the LOWEST possible unit cost

Question 4

How does FREE TRADE benefit the welfare of the society?

Answer 4

• Consumers have access to bigger variety
  of goods.
• Increased COMPETITION improves the
  quality and REDUCE the costs.
• When taxes are also removed, it reduces
  the price even more.

This means: the consumer can BUY MORE with the same disposable income, improving their welfare

Question 5

What are the arguments against FREE TRADE

Answer 5

• Increased production levels causing harm
  to the environment
• Powerful corporations manipulate prices
• Different health/sanitary standard
  requirements between countries
• Individual economies are more vulnerable