What Is Free Trade? Definition, Theories, Pros, and Cons

What is free trade?

• Trade in which all goods and services are subject to high tariffs

• Trade in which all goods and services are free

• Trade only within the country without the participation of other states

• Complete absence of government restrictions on the import and export of goods and services

What is mercantilism?

• The theory of complete free trade without any restrictions

• The theory of maximizing income through the export of goods and services

• The theory that all countries always benefit from cooperation and participation in free trade

• The theory that all countries should protect their markets and not allow competition from other countries

What are the advantages of free trade?

• Stimulates economic growth

• Reason for job loss through outsourcing

• Increases business income

• Allows theft of intellectual property

What is absolute advantage?

• Ability of a country to produce more goods at a lower cost than other countries

• Ability of a country to import goods at a lower cost than other countries

• Ability of a country to produce goods and provide services at a lower cost than other countries

• Ability of a country to sell goods at a higher price than other countries

What are the disadvantages of free trade?

• Improves working conditions

• Increases business income

• Helps protect intellectual property

• Contributes to job loss through outsourcing

What is comparative advantage?

• Ability of a country to import goods at a lower price than other countries

• Ability of a country to sell goods at a higher price than other countries

• Ability of a country to produce more goods at a lower price than other countries

• Ability of a country to produce goods and provide services at a lower price than other countries

What are the advantages of free trade for consumers?

• Increase in consumption taxes

• Lower prices due to availability of products from countries with low labor costs

• Rise in prices due to import restrictions

• Improvement in product quality due to domestic production

What is the General Agreement on Tariffs and Trade (GATT)?

• Treaty establishing high tariffs to protect the domestic market

• Treaty establishing quotas on exports of goods

• Treaty reducing tariffs and other barriers to trade between member countries

• Treaty prohibiting the import of goods and services

What are the disadvantages of free trade for the environment?

• Mass deforestation and mining

• Improvement of environmental standards in developing countries

• Reduction of environmental pollution

• Protection of natural resources

What are the advantages of free trade for foreign investments?

• Foreign investors invest money in local businesses, helping them expand and compete

• Foreign investors create competition, which harms local companies

• Foreign investors do not affect local businesses

• Foreign investors are not interested in local businesses