3.1 International Trade – The Benefits Of Free Trade

  1. Lower prices for consumers – prices are as low as possible for consumers if no trade barriers are imposed.
  2. Greater choice for consumers – free trade means consumers have a greater variety of products to choose from.
  3. Producers are able to benefit from economies of scale – the market size for producers increases due to foreign buyers. That means producers can take advantage of economies of scale by increasing the scale of their production.
  4. Greater ability to acquire required production resources – free trade (no trade barriers) allows producers who require for example, raw materials, to acquire them easier and at a lower cost. That lowers production costs, increases efficiency.
  5. More efficient allocation of resources – free trade (no government intervention) should in theory lead to best possible allocation of resources. That should happen because countries would specialise in producing goods they have a comparative advantage at.
  6. Benefits of increased competition – free trade means higher competition. That drives improvements in price and quality of products, incentivises producers to innovate and look for more efficient ways of production.
  7. Source of foreign exchange – since trade is one of the sources of foreign exchange, free trade should increase the amounts of foreign exchange received.