Question

If Britain leaves the free trade market why would they lose comparative advantage in services? can you use examples/diagrams, please

Answer 1

Britain has a free trade agreement with 28 European countries under EU v& the main advantage of free trade agreement is reduction in tariffs among the member countries, & less competition faced towards the activity in which one nation specializes, Bo particular threat is posed to compete strictly, so they have cost advantage in that particular activity.

But if a nation breaks always from free trade agreement, then it can't easily negotiate to still continue those free trade deals, with the partner nations, thus it's specialization in that particular economic activity / service is hurt & thus this could lead to trade diversion too.

Bcoz now the countries are free to compete with new technologies ideas in that sector, thus the kind of an implicit insulation in terms of competition & challenge is removed .

Shifting of ppf , production possibility frontier is shown