Free trade benefits

• What is free trade?

  Trade between countries without obstacles or barriers
• According to the study material, what should you watch before watching this video?

  The video explaining the free trade diagram
• What is one significant benefit of free trade regarding comparative advantage?

  Countries can exploit their comparative advantage
• What does it mean for countries to exploit their comparative advantage?

  Specialize where they have a lower opportunity cost
• What type of efficiency is achieved when countries exploit their comparative advantage?

  Allocative efficiency
• How does exploiting comparative advantage lead to allocative efficiency?

  Resources are diverted to most efficient producers
• According to the study material, what do world suppliers have on the free trade diagram?

  The comparative advantage
• According to the study material, why is the world supplier price lower than the domestic price on the free trade diagram?

  World suppliers have comparative advantage
• According to the free trade diagram, which suppliers produce the vast majority of the output?

  World suppliers
• According to the study material, what are the two immediate impacts of free trade for consumers?

  Lower prices and higher quantities
• Besides comparative advantage exploitation, what enables firms to exploit greater economies of scale?

  Selling all around the world
• How does global competition affect prices and quantities under free trade?

  Drives prices down and quantities up
• Besides competition, what else spreads faster with free trade?

  Technology
• What area represents the gain of consumer surplus on the free trade diagram mentioned in the study material?


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• How does increased choice benefit consumers under free trade?

  Improves living standards
• How does free trade potentially benefit producers regarding raw materials?

  Access to a greater range at lower price
• How can access to lower-priced raw materials impact producers' profit margins?

  It can drive up their profit margins
• According to the study material, how do firms benefit from comparative advantage exploitation?

  They can make more profits
• How can economies of scale lead to higher profit margins for firms?

  Lower average costs
• What is a generic benefit of trade mentioned in the study material?

  Firms can make more profits
• According to the study material, what can firms do with higher profits?

  Reinvest in advanced technology
• How can countries benefit macroeconomically from higher growth due to free trade?

  By exploiting comparative advantages and exporting surplus
• In the AD equation, how does exporting surplus impact economic growth?

  Increases x - m, boosts AD
• According to the study material, how is the area BC related to higher growth in the AD equation?

  It represents export revenue (higher X)
• What are the major benefits of economic growth for countries, according to the study material?

  Higher income and job creation
• How can job creation and higher income impact poverty levels in a country?

  Drive many people out of poverty
• What is the term used for the faster spread of technology around the world due to free trade?

  Greater technology diffusion
• How does greater technology diffusion occur with free trade?

  Firms can access Imports and copy technology
• How does better technology benefit consumers, according to the study material?

  Brand new goods, lower prices, higher quality
• What is an advantage for producers who can patent their new technologies?

  Get ahead of rivals
• What is a major problem with comparative advantage exploitation, according to the study material?

  Over specialization for a country
• What is the danger of a country being too reliant on the output of one narrow sector?

  Lack of balanced growth
• What can result from over-specialization in terms of income distribution?

  Income inequality
• Why are imports 'fickle' under free trade conditions?

  Due to international relations issues or supply constraints
• What is 'dumping' in the context of international trade?

  Selling goods abroad below production cost
• What is the impact of 'dumping' on foreign industries?

  It decimates them
• What happens to domestic suppliers when a country opens up to free trade, according to the diagram?

  They contract
• What is the de-industrialization, as explained in the study material?

  Shutdown of domestic industry
• What type of unemployment can arise due to the contraction of domestic industries under free trade?

  Structural unemployment
• What is an assumption about regulations and standards under free trade that might not be valid?

  Absence of regulations protecting safety