IGNOU ECO 13 2017 2018 - Advantages and disadvantages of free trade

Question

Advantages and disadvantages of free trade

13 Feb 2018

Answer :

Word Count : 630

Advantages of Free Trade:

The advocates of free trade put forward the following advantages of free trade:

(a) International Specialization:

Free trade causes international specialisation as it enables the different countries to produce those goods in which they have comparative advantage. International trade enables countries to obtain the advantages of specialisation. First, a great variety of products may be obtained.

If there were no international trade, many countries would have to go without some products. Thus, Iceland would have no coal, Nepal no oil, Spain no gold and Britain no tea. Second, specialisation leads to an increase in total production.

(b) Increase in World Production and World Consumption:

International trade permits an industry to take full advantages of the economies of scale (large-scale production). If certain goods were produced only for the home market, it would not be possible to achieve the full advantage of large-scale production. So, free trade increases the world production and the world consumption of internationally traded goods as every trading country produces only the selected goods at lower costs.

(c) Safeguard against the Advent of Monopolies:

Thirdly, if there were no international competition, the home market would be so narrow that it would be comparatively easy for the combinations of firms in many industries, e.g., motor cars, paper and electrical goods, to exercise some control over it. Free trade is often an efficient way of breaking up domestic monopolies.

(d) Links with Other Countries:

International trade and commercial relations often lead

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