The Benefits Free Trade (AS Level Economics)

Free trade occurs when there are no obstacles between countries to trade.

Advantages

Specialisation: some countries will have a comparative advantage in production, meaning that they can produce certain goods cheaper, using their own resources and will have built up knowledge and expertise on the specific production. Specialisation permits trading nations to achieve higher levels of output, thus higher levels of consumption.

Economies of Scale: production can be made cheaper at a larger scale as the size of the markets in which producers sell their goods and services increases. This can be felt through benefits such as bulk buying, and is especially significant for small nations.

Choice: consumers are presented with a greater variety of goods to choose from.

Innovation: growth is stimulated by accelerating technological change and spurring competition.

Competition: increased level of competition will increase productive and allocative efficiency and lower prices of domestic firms. Free trade also decreases the power of domestic monopolies by exposing them to international competitive forces.

Closer Links: trade between countries will increase their political tie as they become economically dependent on each other. A diffusion and transfer of technology and ideas across borders will become faster.

Best use of scarce resources: as factor endowments differ between countries, specilisation of scarce resources is permitted.