IGCSE Economics Paper-2: Specimen Questions with Answers 21 - 21 of 100

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Total of credit side of the balance of payment should always equal the debit side.

Question 21 (5 of 5 Based on Passage)


Write in Short

Short Answer▾

State the benefits of free trade to consumers


Trade without government interference is known as free trade. In the case of free trade, there is no duty of import and export and there is no quantitative restriction. In the real world, there is hardly any example of any country following free trade policy.

The Following Are the Merits of Free Trade

  • Increases consumer welfare: Consumers will get the best quality product at the lowest price from the company which is most competent to deliver maximum value to the consumer.
  • Increase world output: As a result of free trade, each country will specialize in products which it can be manufactured efficiently. All countries will now produce goods in which they are most efficient and a country will import goods in which domestic sector doesn՚t have competency.
  • Increases competition: Free trade will encourage domestic sectors to compete with globally best companies. Domestic companies will have to prove themselves as best in the world economy. This will reduce the possibility of earning monopoly profit.
  • Companies will be able to generate economies of scale: Company of a country which is best in producing a particular product will try to sell it all over the world. Thus, it can benefit of economies of scale, which otherwise it will not be able to take advantage if it is selling only in domestic market.

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