Question

Discuss the economic reasons for conducting free trade. Explain why in practice countries restriction on free trade

Answer 1

Answer :Free trade means that when there is no restrictions on import or export . There is no tariff or quotas exist in an economy. An economic reasons for applying Free trade in an economic:

• Free trade helps to drive economic growth of an country.
• It helps in increasing innovation
• Free trade helps to achieve comparative advantage. A country should produce that product which cost is less and increases economic welfare.
• It has lead to trade creation as there is no restrictions.
• Lower price of the goods
• Increases competition
• If the country is specialised in particular goods than they achieve economic of scale and lower average cost.
• Trade is an engine of an economic growth
• Efficient in production.
• Increased competition

Free trade are restricted by countries because

1. With the removal of tariff and quotas , structural unemployment may occurred in an economy.
2. Instability in an economic has been arised
3. Domestic small new firm feel it difficult to survive in an competitive environment.
4. It can lead to inequality in nation.
5. It can causes unemployment in an economy because big businessman switch over there product to an area where labour is cheap.
6. It can cause environment problem such as global warming
7. Sometime economic growth start declining.