Wednesday, August 26, 2015

August 26, 2015



Advantages that occur from opening a market to free trade:
  • Increased production:
    • A firms market becomes a lot bigger, which lowers average costs and increases productivity.
  • Consumer benefits.
    • Greater variety of goods and services, as well as lower prices due to competition.
  • Employment.
    • Higher employment in exporting industries.
  • Production efficiency.
    • Increased competition promotes new innovations and technologies for producers to produce more with the resources they have.
  • Economic growth.
    • Living standards and real incomes increase due to competitive industries.
  • Foreign exchange gains.
    • Can get other country's currency by selling goods to then import goods.
Disadvantages that occur from opening a market to free trade:
  • International trade cycles can cause domestic economic instability as economies become dependent on global markets.
  • International markets are not a level playing field.
    • Countries with a surplus of a product may offer it for a very small price which other countries might not be able to compete with.
  • Developing/new industries might have difficulty competing with global competitors.
  • Pollution
    • As industries compete with the market price they might not include certain production costs.