Free Trade Essay Example | Topics and Well Written Essays - 2250 words

Free Trade - Essay ExampleSuppose that at scratch line no mete out was occurring as a result of which the original demand and hand over prune, D & S respectively be the countrys demand and supply. At the point equilibrium occur at point Y at the interaction of two points. However, if a country indulges in free trade SW curve becomes its supply curve and new equilibrium occurs at Y1. The result why the equilibrium quantity of supply is unhorse than for the demand curve S is because some countries can produce these products at a lower expense than otherwises because of comparative and absolute advantages discussed below and as a result our country give tip the production of this good citing that other countries can produce it cheaply. This is a point of controversy among supporters of free trade and people who are against free trade. The people who oppose free trade argues that domestic production will reduce from Y to Y1 as result of free trade and hence this implies closin g down of factories, retrenchment and unemployment of topical anaesthetic anaesthetic factors of production. They say that free trade is an evil that should be stopped from penetrating a local anesthetic market for the reasons discussed above. However, the supporters say that this leads to more than efficient use of global resources as efficiency as more products are world produced where they can be produced cheaply. Although it might be beneficial on the global basis, it should be discourage in the developing economies which are seeking to maximize employment rate and implementing policies for the growth of local industries. Faced with this problem many countries often charge a tariff on imports which increase its price and hence reduces the impact of imports on local industry and market. This increase reduces the local supply from Y to Y2 which is creates a littleer impact on domestic supply exactly still it is large enough to travel domestic industry and hence receives cr iticism from people who suffer from unemployment etc. However, once a a high tariff is charged raising the price of imported goods above what is being incurred in local market, it does not affect the local industry, in theory. This is the right amount of tariff and completely against the free trade, but people who oppose free-trade are appeased by this as local industry is not harmed. Similarly, supporter of free-trade argues that this is against the frugal teachings of productive and allocative efficiency as the benefits of low-cost are not being enjoyed by the people resulting in less demand and people who want to consume the products at lower prices are not being catered i-e allocative inefficiency.Before coming at the conclusion whether free-trade should be allowed or not, lets look at absolute and comparative advantages.Absolute advantage occurs when one country can produce one commodity better than other i-e the production cost in one country is lower than other or requires f ar less resources and hence efficient. Following assumptions are necessary for the use of absolute advantage theoryThere are only two