Benefits of Free Trade

• Free trade


  Trade between countries without any barriers like tariffs, quotas, embargoes, domestic subsidies, or red tape
• Advantages of free trade

  • Greater efficiency in the world market
  • Improvement in the allocation of world resources
  • Countries can specialize in goods/services where they have a cost advantage
  • Access to goods/services that couldn't be produced domestically
  • Lower prices for consumers
  • Greater competition
  • Economies of scale
  • Technology transfers
  • Greater consumer choice
  • Increased exports can boost economic growth
• Law of comparative advantage

  1. Countries specialize in goods/services where they have an opportunity cost advantage

  2. They can then trade to access other goods/services
• Brazil opens up to free trade

  World supply curve becomes more elastic and shifts down, lowering the price
• Lower price from free trade

  Increases consumer surplus, decreases producer surplus in Brazil
• Diagrams are useful for analysing the effects of free trade policies