IGCSE Development Studies: Specimen Questions with Answers 17 - 18 of 98

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Forms of Free Trade

Question 17 (2 of 7 Based on Passage)

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Which country is an example of free trade?

Explanation

Example of Free Trade is NAFTA. A trilateral agreement was signed by Canada, Mexico, and US known as North American Free Trade. It came into force on 1st January, 1988. NAFTA trade bloc is one of the largest trade blocs in the world. The purpose of NAFTA is to:

  • To allow free movement of goods and services in the free trade areas.
  • To increase competition in the free trade areas.
  • Protect the property rights of people and business in each country
  • To resolve problems that rise among countries
  • Encourage cooperation among countries.

NAFTA eliminated all non-tariff barriers to agricultural trade between USA and Mexico. Other Tariffs such as tariffs on qualifying goods were eliminated and some were phased out for long periods of time (5 - 15 years) . Because of this orderly adjustment were able to free trade with Mexico. It also improved working conditions in North America.

Benerfits of Free Trade

Question 18 (3 of 7 Based on Passage)

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State the benefits of free trade to neighboring countries

Explanation

Main aim of a free trade area is to reduce the trading barriers, mainly tariffs and quotas to promote free trade of goods and services among the member nations.

Benefits of Free Trade to Neighboring Countries Are

  • Efficiency: Free trade area encourages competition by offering better quality of goods and services which are not expensive. It helps in increasing the overall efficiency of the country in comparison to its competitor.
  • Specialization of countries: The countries will produce those goods and services at which they are most efficient to meet the competition as they will take less time in production of those goods and services at which it is specialized.
  • No Monopoly: With the free trade monopolies are eliminated from the market as more players can enter the market because trade and tariffs quotas are eliminated.
  • Lowered prices: When the competition at the global level increases the prices go down which allows consumer to enjoy increased purchasing power
  • Increased variety: Consumers will have an increased access to different products that are inexpensive through free trade.
Benefits of Free Trade

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