Advantages and Disadvantages of Free International Trade

1a) Advantages of free international trade

1. Increasing the production.

Countries are enabled by free international trade to specialise or to focus in the production of the goods in which they have a comparative advantage. Specialisation countries can take the benefit of efficiencies generated from increased output and economies of trade. The size of the firm’s market are increased by the international trade which results in lower average costs and increasing in productivity, as it ultimately leads to increase in production.

2. Production efficiencies.

The efficiency of resources allocation is improved by the free international trade, as the higher productivity and increasing in total domestic output of commodities and services are leaded by the more efficient use of resources . increase in competition promotes the use of new technology, innovative production methods, marketing and distribution methods.

3. Foreign exchange gains.

When a country sells exports overseas, it receives a hard currency from the other countries which buy the goods. When the country get the money from selling exports overseas they use it again to pay for imports such as electrical equipment and cars which are produces more cheaply by overseas.

4. Economic growth.

More competitive industries, increasing in productivity, efficiency and production levels creates rising living standards, higher rates of economic growth and increasing real incomes to the countries which are involved in free international trade experience.

5. Consumers benefits.

Consumers get the advantage in the domestic economy as they can now get a variety of goods and services. Increasing in competition ensures goods and services. As the inputs also are supplied at the lowest prices...

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...ever, this will be a loss of monetary policy independence for at least one of the two countries.

References:

1. Aldela, I. (2014). Monetary policy formation and effectiveness under fixed exchange rates. [ONLINE] Available at: http://www.academia.edu/3594137/Monetary_policy_formation_and_effectiveness_under_fixed_exchange_rates. [Accessed 19 April 2014].

2. Begg,D and Ward,D (2009). Economics for Business. Third edition. Berkshire. McGraw-Hill.

3. Charles Sturt University. (2014). Free trade and protection: advantages and disadvantages of free trade. [ONLINE] Available at: http://www.hsc.csu.edu.au/economics/global_economy/tut7/Tutorial7.html. [Accessed 19 April 2014].

4. Council for economic education(2014). FISCAL AND MONETARY POLICY PROCESS. Available From: http://www.econedlink.org/lessons/index.php?lid=352&type=student [Accessed on 17TH April 2014].