Free Trade (Edexcel IGCSE Economics)

The Benefits of Free Trade

• International trade refers to the exchange of goods and services between countries

• International trade involves the exchange of goods and services through exports and imports

• International trade is 'free' when there are no government restrictions (quotas, taxes, etc.) to reduce or limit trade

• Greater choice: with access to a wider variety of goods and services, the standard of living improves

• Lower prices: with international competition, prices fall, giving households the ability to buy more

• Increased sales: increased access to larger markets allows economies of scale to be achieved, diversification of risk to take place and increases sales revenue

• Lower input costs: increased access to inputs such as raw materials and labour means output can increase and costs of production can fall. Firms benefit from increased profit

The Costs of Free Trade

• International trade may offer extra advantages to more economically developed countries whilst exploiting less economically developed countries

• More developed countries may lose out as firms relocate their production facilities abroad

The Cost of Free Trade for Developed and Developing Countries