free trade

What is Free trade?

Open trade between countries without government restrictions such as tariffs quotas or subsidies

What is a tariff?

A tax on imported goods to make them more expensive for consumers(producers pass on the price importing firms pay the tax)

What is a quota?

A limit on the quantity of a good that can be imported

How does free trade improve efficiency?

Countries can specialise according to comparative advantage’s ,lowering cost improve quality

How does free trade affect prices?

Increased competition leads to lower prices for consumers

How does free trade affect consumer choice?

Greater variety of goods and services that couldn’t be accessed without global trade

How does free trade affect economic growth?

Access to larger markets increases exports, investment and GDP

How does free trade encourage innovation

Firms face greater competition and must improve quality and efficiency

What is Comparative advantage

When a country can produce a good at a lower opportunity cost than another

Why is comparative advantage important for free trade

It maximises global output and welfare when countries specialise.

Free trade employment

Export lead industries grow creating jobs

domestic firms unable to compete may close causing structural unemployment

How may free trade increase inequality?

Low skilled workers loose jobs, while high skill workers benefit

What is the sunrise industry argument?

New industries may need help until they can compete

Free trade environmental

Firms can relocate to countries with weaker environmental regulations

How can free trade cause over specialisation

Countries may become to dependent on one industry or export

What is protectionism?

Government policies which restrict free trade to protect domestic industries

Protectionist policies

Tariffs quotas subsides embargo

Why may government choose protectionism over free trade

To protect jobs, national security, reduce trade deficit