In addition to the positive welfare effects that free trade has on an economy, t

Question

In addition to the positive welfare effects that free trade has on an economy, there are a variety of other benefits of international trade. Consider the following scenario: Without free trade, Rooby has market power as a local producer. Once free trade is implemented in the local economy, Rooby is no longer able to raise its prices above competitive levels. The previous scenario represents which of the following benefits of free trade? Enhanced flow of ideas Increased competition Increased variety of goods Lower costs through economies of scale

Explanation / Answer

Answer ) b.) Increased competition.

Free trade improves the efficiency of resource allocation that further leads to Increased competition and promotes use of innovative production methods.

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