free trade

Free trade

International trade that is not subjected to any kind of trade barriers , such as tariffs or quotas

Open economy

It is a national economy that engages freely in international trade with other economies

International trade

Involves movement and exchange of physical goods such as materials , components parts, equipment and finished products as well as services and money across international borders

Exports

Goods and services sold by firms located in one country (must have a surplus of that product /more efficient in producing that product) to consumers in other countries .

Why free trade

1. No country is self sufficient to produce all goods and services it needs and wants

2. There are limited resources so countries trade in order to survive

Benefits of free trade

1. Allows countries to benefit from specialisation

2. Lower prices for consumers

3. Increases consumer choices

4. Increased competition and greater efficiency in production

5. Access to resources from around the world

6. Make countries independent

7. Trade makes possible the flow of new ideas and technology

How does international trade allow countries to benefit from specialisation

1. International trade enables countries to focus on producing good and services that they can best produce.

2. This means they can utilise their natural resource, labour and capital more efficiently and this can generate surplus output . (Export these surplus outputs to countries that are less efficient at producing that good)

How do countries benefit from specialisation

1. They trade the surplus with other nations to acquire goods and services that would be less efficient or more costly for them to produce domestically

2. Specialisation and trade boosts overall economic output , enhances living standards and raises incomes or all participating countries.

Domestic

Your country

Foreign

Other country

Lower price for consumers

1. Purchase goods and services at lower prices compared to domestic ones

2. Consumers can buy cheaper products and producers can acquire more affordable raw materials and semi-manufactured goods

3. Prices are often lower in some countries due to the access to natural resources (factor endowment : gifted with those features), variations in capital quality and differing levels of technology

Increases consumer choice

1. International trade allows consumers to enjoy a wider variety of products

2. They can access not only goods produced domestically but also those imported from various countries around the world

Import

Brining in of goods and services from other countries

Increased competition and greater efficiency in production

1. International trade can increase competition as domestic firms compete with foreign firms

2. The competition drives greater efficiency And enhance the quality and variety of products available to consumers

Free trade allows countries to access resources from around the world (advantage)

1. Some countries may lack essential resources like copper or steel which are essential in producing the product.Different countries ave varying access to natural resources and technologies.

2. Engaging in international trade allows these countries to obtain the necessary resources . Thy import these resources .

3. In exchange, they export their own goods and services to pay for these imports

4. Global exchange occurs (definition next slide)

Global exchange

Allows countries to access the resources and technologies required for their economic development and production processes

Make countries independent (adv)

The interconnecedness through trade fosters cooperation and stability. This economic interdependence promotes peace and reduces the chances of conflict.

Trade makes possible the flow of new ideas and technology (adv)

• they exchange knowledge and innovations

• Adopt technology / expose to more ideas etc