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

Free Trade - Essay ExampleSuppose that at first no trade was occurring as a result of which the original consider and supply curve, D & S respectively are the countrys demand and supply. At the portend equilibrium occur at point Y at the fundamental interaction of ii points. However, if a country indulges in free trade SW curve becomes its supply curve and new equilibrium occurs at Y1. The result wherefore the equilibrium quantity of supply is pooh-pooh than for the demand curve S is because some countries can produce these products at a lower price than former(a)s because of comparative degree and absolute expediencys discussed below and as a result our country will stop 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 i mplies closing down of factories, downsizing and un involution of local factors of production. They say that free trade is an evil that should be halt from penetrating a local market for the reasons discussed above. However, the supporters say that this leads to more efficient use of global resources as capability as more products are existence 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 obligation on imports which increase its price and hence reduces the daze of imports on local industry and market. This increase reduces the local supply from Y to Y2 which is creates a lesser impact on domestic supply but fluent it is large enough to affect domestic industry and hence receives criticism from people who suffer fro m unemployment etc. However, once a a high obligation 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 economic 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 far less resources and hence efficient. Following assumptions are necessary for the use of absolute advantage theoryThere are only two