free trade is good

historically countries have relied upon trade protection to 

• maintain price stability 
• achieve external balance and full employment 
• boost GDP by exploiting less developed economies who can supply cheaper goods 
• to increase government revenue 

the main types of trade protection have been 

• voluntary export restraints , voluntary cash flow remittances and retrocapital flows 
• financial barriers that make imports of lower quality 
• financial barriers that increase the cost of imports and lower production costs of domestic rivals
• embargoes quota and quarantine 

the main criticisms of tariffs and subsidies as forms of trade barriers are

• they encourage inefficiency, increase real price either directly or indirectly and can create trade wars
• that they don't work even when the tariff wall is high 
• they are no longer viable since the WTO has banned all trade protection across the globe 
• the money raised by tariffs rarely goes to the domestic industries that need bigger subsidies 

In the past two decades with the dominance of the ........ school of economic thought and policy , free trade has become more popular

• mercantile discountism
• comparative advantage 
• neo classical theory with the emphasis on market forces and competition 
• keynesian economic policy with the emphasis on government intervention 

the concept of free trade means 

• the reduction of tariffs and subsidies in countries so they are no longer as large as they were in the past 
• the removal of all trade barriers both direct and indirect to facilitate more efficient use of scarce resources 
• the free movement of all goods, service , ideas, people, money and technology across the globe 
• trade which is based on the cheapest prices due to the benefits of perfect competition and economies of scale 

the theory of free trade is not a new one - it was created back in the the earliest times of economic thinking by 

• adam smith
• Karl marx 
• David ricardo 
• john maynard keynes

the theory he promoted highlighted specialisation , economies of scale and the sale of the surplus on free global markets was called 

• marshall lerner condition 
• comparative advantage 
• pigovian equilibrium 
• J curve theory 

free trade is based on a number of key assumptions 

• only two countries , goods,  one has lower domestic inflation than the other 
• two countries two goods, both operating on the PPC and no transport costs 
• a number of countries all completing to ensure the lowest possible cost shown on a supply and demand graph 
• none of the options are correct 

if there were two countries and they used half their resources on either        wheat or cars
A                      10      1
B                       1       15
after free trade what would they be produce 

• A  10 cars   B 15 wheat 
• A 20 wheat and 0 cars 
  B 0 wheat and 30 cars 
• C A 11 wheat 0 cars 
  B  0 wheat and 16 cars 
• a total of 16 cars and 11 wheat in the economy 

under the theory of comparative advantage 

• each country would specialise on what they do best - 
• each country wouldn't trade because they are independent
• each country would sell more poor quality goods overseas and keep the best production for home 
• the country that was less efficient could still benefit by producing goods they have a lower opportunity cost