Question

This is a graded discussion: 2 points possible due- 22 22 Week 5 Discussion 1 Respond to the DQ by clicking Reply Week 5 Discussion 1 (Due by Wednesday) Large scale import of goods and services has been blamed for loss of jobs in our country. As an economist, h an you justify free international trade in goods and services in face of that criticism?

Answer 1

Free trade means that countries can import and export goods without any tariff barriers or other non-tariff barriers to trade.

Essentially, free trade enables lower prices for consumers, increased exports, benefits from economies of scale and a greater choice of goods.

Increased exports

As well as benefits for consumers importing goods, firms exporting goods where the UK has a comparative advantage will also see a significant improvement in economic welfare. Lower tariffs on UK exports will enable a higher quantity of exports boosting UK jobs and economic growth.

Economies of scale

If countries can specialise in certain goods they can benefit from economies of scale and lower average costs; this is especially true in industries with high fixed costs or that require high levels of investment. The benefits of economies of scale will ultimately lead to lower prices for consumers and greater efficiency for exporting firms.

Increased competition

With more trade, domestic firms will face more competition from abroad. Therefore, there will be more incentives to cut costs and increase efficiency. It may prevent domestic monopolies from charging too high prices.

Make use of surplus raw materials

Middle Eastern countries such as Qatar are very rich in reserves of oil, but without trade, there would be not much benefit in having so much oil.
Japan, on the other hand, has very few raw materials; without trade, it would have low GDP.

Tariffs may encourage inefficiency

If an economy protects its domestic industry by increasing tariffs industries may not have any incentives to cut costs.