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4.2.6 QUIZ: International Trade
Question 7 of 10
What is meant by the phrase "free trade"?
1
SUBMIT
A. That international business is not limited by tariffs or quotas
B. That there are no shipping costs within those countries
C. That products traded between those countries are at no charge
○ D. That companies are expected to make less profit

Verified Answer :

GinnyAnswer

Final answer:

Free trade promotes free flow of goods and services between countries without artificial barriers, benefitting from the law of comparative advantage.


Explanation:

Free trade refers to a system of trade without 'artificial' barriers like tariffs or duties that limit exports and imports between countries. It promotes mutual gains from trade by allowing goods and services to flow freely.

Governments in a free trade system do not discriminate against imports or interfere with exports through tariffs, subsidies, or quotas. This policy is based on the law of comparative advantage, benefiting trading partners.

Trade liberalization reduces import tariffs, making trade more profitable and fostering a freer trade environment. In contrast, protectionism involves imposing tariffs to protect domestic firms from competition.


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