Free trade save my exams

What is free trade/globalisation ?

Free trade is the movement of goods and services across borders without barriers to trade and the increasing interdependence of world economies

What does the WTO (world trade organization) do ?

promotes free trade as much as possible. It provides a forum for members to discuss trade agreements and settle disputes. There are currently over 150 members in the WTO.

What are benefits of free trade ?

Specialization of labour

Increased competition

Ability to transfer resources

Opportunities for firms to expand into global markets

Lower prices

Economic growth

more choice

What are disadvantages of free trade?

put jobs at risk

Harm infant industries

Certain goods imported can be bad for society

Can decrease independence

No protection against dumping

Create imbalances in the balance of payments

What is comparative advantage ?

Economic concept that refers to a country is ability to produce a particular good or service at a lower opportunity cost that others.Explains how even if one country is less efficient at producing all goods compared to another it can still benefit from trade by specializing in goods/services it produces more efficiently.

Why is specialization and division of labour a benefit of free trade?

increases efficiency in production. Comparative advantage can be gained which means products can be produced at lower opportunity costs. This can lead to increased global output and lower prices

Why is economic development a benefit of development!

Increased output leads to lower levels of unemployment, which leads to higher incomes and a higher standard of living

How is increased competition a benefit of free trade?

increase overall efficiency in markets as firms compete with each other to maintain low prices and strong quality products(the most efficient producers are the ones providing goods in a free market-everyone benefits with lower costs and best quality goods-they have CA)

Increased competition leads firms to benefit from economies of scale,causing costs to fall and consumers to benefit from lower prices

How does free trade lead to economies of scale?

As international trade increases so competition this leads firms to benefit from economies of scale causing costs to fall and lower prices.

competition pushes firms to expand their operations, improve efficiency and lower costs/prices.Firms are able to expand in size when they increase production,when they do this average costs fall as costs are spread over a a larger output.Lower costs benefit consumers with a lower price.

When firms grows they become more efficient due to eos there are technological advances (allocation of resources)etc.There are external eos which is when an industry grows so as a result individual firms benefit eg from better roads,transport networks,infrastructure

Make firms more efficient with lower costs of production as they can produce more output with same input

How is the ability to transfer resources a benefit of free trade?

many countries would not be able to produce certain products if it were not for trade e.g. oil

Output increases and costs of production will fail with increased access to raw materials (increase in productive efficiency)

Creates international cooperation and builds international relationships leading to lower levels of hostility

How is opportunities for firms to expand into global markets a benefit of free trade?

this can increase profitability and earn the country export revenue leading to economic growth. An extreme example is an MNC (multinational corporation)

How does free trade affect jobs?

Can cause structural unemployment.

This is due to industry decline due to foreign competition there are cheaper imports that domestic industries can no longer compete with.

Ex: In manufacturing if a country imports cheaper goods from countries with lower labour cost local factories will close and workers laid off.Country will shift in economic structure

Workers skills no longer match types of jobs in economy

How does free trade affect dumping?

Lower trade barriers make it easier for foreign countries to dump there cheap products in another country which harm the domestic market there

Offload surplus of goods harm domestic producers

Lead to retaliation through protectionism

How does it affect balance of payments?

Some countries will import more than they export, resulting in a deficit on the current account.In developing countries, this situation is usually the result of a lack of global competitiveness and involves importing necessity products

Free trade Encourages foreign direct investment by MNC they can invest in a countries capital etc which leads to economic growth creates jobs builds up industry which is helpful in pics

How can free trade lead to over specialization?

• Developing countries often lack the finance to develop a diversified product base and end up over-specialising in commodity products

• This makes the country's GDP very dependent on these goods

• Vulnerable to external shocks (change in global demand)

How can external shocks be a disadvantage of free trade?

• Shocks to other economies have a knock-on effect due to the interdependence that develops with trade 

• E.g. the Russian war on Ukraine has created global shockwaves in the energy & grain markets