Trade/Globalisation

Question 1

What is Free Trade?

Answer 1

• Free Trade is Trade between countries without the introduction of artificial barriers.
• International Trade reflects exchange and specialization;
• exchange: countries supply goods and services that they can produce relatively cheaply and buy products from other countries that they would find relatively expensive to produce
• Specialisation: benefits from trade are increased if there are economies of scale from production and if countries specialise their resources in producing certain commodities.

Question 2

What are the Potential advantages of Trade?

Answer 2

• Competition
• Comparative advantage
• improvements in dynamic efficiency
• economies of scale (lower LRAC)
• Trade is seen as a stimulant to short term aggregate demand and long run economic growth

Question 3

Disadvantages of Trade?

Answer 3

• economic dependence
• mis utilisation of natural resource
• import of harmful goods
• danger to international peace/world wars