Free Trade and its Benefits Essay Example | Topics and Well Written Essays - 750 words

Free Trade and its Benefits - Essay Examplee study of this subject really seriously. According to Lipsey,International Trade is a transaction and treat of propers and services between two individuals living in different countries,two companies operating in different countries and however two governments indulging in some form of trading activity.International trade becomes Free Trade when there are no taxes, quotas and tariffs are levied to these transactions. International trade becomes controlled trade when taxes and quotas are present in the trade activity involving two parties from different countries.There are certain advantages of Free Trade such as efficiency,improved bill of living and foreign earning.The disadvantages of Free Trade are plenty too.These include government revenue loss, deterioration for topical anesthetic industry and outflow of foreign reserves.It is wide believed that free trade leads to efficiency.This can be explained by a diagram,but we must keep i n mind that opposite of free trade is one where the swarm government charges either tariffs or quotas on imported goods. In the above diagram, it can be seen that free trade is more meritorious to a federal agency where either no international trade is taking place or where the trade is not free. At first there is no free trade. The grocery is work at a point where D=S or where demand is equated to supply. The equilibrium quantity of goods traded at this point is represented by Y. If the country decided to indulge in free trade then SW leave become the supply curve and fewer goods will be traded in the market at point Y1. The reason why the quantity of goods traded in the market is decreased is beca expend the imported goods are cheaper and topical anaesthetic production of goods has reduced and the gap between Y-Y1 is filled by imported goods. This is a point of controversy and economists who are against Free Trade argue that free trade will lead to closure and downsizing of local businesses resulting in massive unemployment in the country. Under these circumstances Free Trade looks like an evil and it looks a logical claim that imported goods should be stopped from penetrating the local markets. However, the supporters of Free Trade claim that it leads to better utilization of worlds scarce resources. They use the theories of absolute and comparative advantage to justify their claim and recommends that the country should divert from production of goods in which it does not have an absolute and comparative advantage to the good where these advantages can be exploited. However, many countries choose a different route and exploit the benefits of allocative efficiency. They charge some sort of taxes to imported goods or give subsidies to local industries to make sure that local production remains high and local industries are able to compete with the imported goods. This leads to partial improvement in local industries situation, but at the expense of eff iciency. Hence, one can see that any trade that is taxed or restricted cannot yield same amount of efficiency as uncontrolled trade. Free Trade also renders certain other advantages too. It leads to an increase in choices that people can make. This is a necessary condition for improvement in living standard of people. Hence, Free Trade allows people to live a better life. Free Trade