Exam questions of macroeconomics - Essay Example

Thus when there is trade barriers applied they protect the producers of goods and services from competing in the international market. It obstructs easy trade flows between countries. The importance of free trade in a globalized world economy can be seen from the following distinct advantages resulting from free trade. Free trade enables the countries to concentrate and increase the production of those goods and services in which they possess the comparative advantages in terms of economies in cost of production.

With the kind of specialization in different products the countries are able to enjoy the economies of scale and this largely reflects in the final prices to the international consumers. The indulgence in international trade results in the enlargement of the market for the firm. The increase in market size lowers the average production cost and enhances the productivity of the firms. When there is increase in the international trade the world economy also gets a boost towards growth. Another distinct advantage that is very important for the world economy is the improvement in efficiency of the production processes which leads to a proper allocation of available resources.

The more efficient use of resources automatically leads to increased productivity. A higher output in terms of goods and services is another distinct advantage resulting from free trade. The efficient allocation of resources in the individual countries contribute to the growth of the world economy as there will be an all round increase in production of goods and services which can flow between different countries without any restriction. The removal or reduction of tariffs and taxes will increase the benefits available to the consumers in different countries of the world.

Because of the expanded market there will be increased competition among trades which will improve the quality of the goods and services which