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?Increased variety of goodsEnhanced flow of ideasIncreased competitionLower costs through economies of scale

Answer 1

Increased competition.

Answer: Option 3.

Explanation:

Free trade is the trade of goods and services from one country to the other country without any boundations and without any restrictions. As a result of the free trade, the consumers have more variety of a particular good in the market.

In this particular case, since Rooby is no longer the only producer of this particular because of the free trade in the market, he can not charge too high for a particular good and it increases the competition between the producers.