Free Trade and Protection

Positives of Trade Liberation

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Christian Bien

Learning Objectives

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Positive #1: Trade Allows Consumption to be Greater than Production
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The law of comparative advantage states that when countries compete in trade, all participants will be able to consume more resources. By specialisation, nations can expand their consumption possibilities.

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Positive #2: Importing Goods and Services Lowers Inflation
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Countries only import when the world price is lower than the domestic price. By importing, households have access to lower priced goods and services with no or minor changes in quality.

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Positive #3: Importing Goods or Services Increases the Variety of Goods and Services Accessible by Households
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There are limitations to what goods and services countries can produce. Through trade, households can access goods and services that cannot be produced in Australia or is too costly to produce.

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Positive #4: Trade Increases Real Income and Living Standards
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The fast period of world economic growth was during periods of high world trade growth. Australia's GDP rose substantially due to radically trade reforms equating to increases in real incomes. In addition, trade allows for a higher consumption of resources, increasing living standards.

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Positive #5: Trade Increases Competition and Resource Efficiency
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Trade forces domestic producers to be more efficient or change production. Trade forces inefficient resources to join expanding sectors of the economy. Although this creates structural change and unemployment in the short term, this is outweighed by gains in long-term output and employment.

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Positive #6: Trade Creates More Higher Paying Job Opportunities
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Trade creates more new and higher paying jobs. Trade has forced the structural change in Australia's economy from a manufacturing country to a resources and services based economy. Jobs in resources and services industries provide higher incomes in contrast to manufacturing.

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