Free Trade (Edexcel IGCSE Economics)
Exam board Pearson Edexcel · IGCSEUpdated 2024-06-27
The Benefits of Free Trade
Spec point —
2.2.2a
- 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
Free trade is the movement of goods and services without government restrictions
- 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
Spec point —
2.2.2a
- 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
| **Cost ** | Explanation |
|---|---|
| Unemployment | - Developed countries may face structural unemployment as firms relocate production facilities to low cost countries - Some countries also lose out due to increased competition from emerging economies, which may increase unemployment in certain industries - E.g. USA and UK experience job losses in their textile industries due to imports from countries like China and Bangladesh - Despite beneficial** job creation**, developing countries may face issues related to resource exploitation (natural resources and labour) and poor working conditions |
| Domestic business | - Infant industries and sunset industries* would be unlikely to succeed against global competition from established foreign firms - Domestic businesses in developed countries may face intense competition from goods produced more cheaply in developing countries - E.g. Small businesses in the UK may struggle to compete with lower priced products from China |
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