Free Trade and Economic Growth

Paper Summary:

This paper analyzes the basic principle behind free trade between countries. It discusses the purpose of free trade and the aims that it hopes to achieve. The paper then provides an economic analysis using the law of demand and supply in order to explain the rationale behind free trade. In addition, the paper discusses the concept of protectionism and relates it to free trade and growth.

Table of Contents:
Free Trade
Protectionism
Free Trade, Protectionism and Growth

From the Paper:

"A deeper understanding of the rationale behind free trade can be obtained through an economic analysis using the law of demand and supply. The following graph illustrates a simple case of tariff being imposed on some imported good, and its effects on consumers, producers, and the government. It can be seen in the graph that prior to the tariff imposition, the price of the good is Pworld. After the tariff is imposed, the price rises to Ptariff. As a result, the domestic production increases from QS1 to QS2, and at the same time the domestic consumption decreases from QC1 to QC2. The effects of this tariff are as follows. The producers are better off, and the producer surplus increases (yellow portion of graph), the government is also better off as it gains additional tax revenue as a result of the tax imposition (the blue portion of the graph), but the consumers are significantly worse off and the consumer surplus decreases (the green portion of the graph); So much so that the loss of the consumer more than offsets the gains of the producers and the government. Therefore, it has been aptly demonstrated that free trade would result in a benefit to the society. Imposition of trade restrictions causes a net loss to society because the losses from trade restrictions are larger than the gains from trade restrictions."

Sample of Sources Used:

• Merriam Webster Dictionary
• Gregory Mankiw, n.d. Ch.7 "Macroeconomics" Fifth Edition
• Fuller, Dan; Geide-Stevenson, 2003, pg.369-387 "Consensus among Economists: Revisited" Journal of Economic Review
• Mankiw, Gregory, 2006, Outsourcing Redux
• Krugman, Paul, 1998, 'In Praise of Cheap Labor'

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• Essay # 8719 : "Conditions of Economic Growth and the Asia-Pacific Region"
• Research Paper # 40678 : "Free Trade Areas"

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