The benefits of economies of scale will ultimately lead to lower prices for consumers and greater efficiency for exporting firms. If countries can specialise in certain goods they can benefit from economies of scale and lower average costs this is especially true in industries with high fixed costs or that require high levels of investment. Lower tariffs on UK exports will enable a higher quantity of exports boosting UK jobs and economic growth. When the UK joined the EEC – the price of many imports from Europe fell.Īs well as benefits for consumers importing goods, firms exporting goods where the UK has a comparative advantage will also see a significant improvement in economic welfare.
Essentially, removing tariffs leads to lower prices for consumers – so the price of imported food, clothes and computers will be lower. If demand elastic consumers will have a big increase in welfare The magnitude of this increase depends upon the elasticity of supply and demand. However, overall there will be an increase in economic welfare of 2+4 (1+2+3+4 – (1+3). Domestic firms producing this good will sell less and lose producer surplus equal to area 1. Tax revenue from imports was T (P1-P2) × (Q3-Q2) The government will lose tax revenue of area 3. Imports will increase from Q3-Q2 to Q4-Q1. This fall in prices enables an increase in consumer surplus of areas 1 + 2 + 3 + 4. The removal of tariffs leads to lower prices for consumers (Prices fall from P1 to P2). Trade creation occurs when consumption switches from high-cost producers to low-cost producers. Reducing tariff barriers leads to trade creation Free trade enables countries to specialise in those goods where they have a comparative advantage.Ģ. This explains that by specialising in goods where countries have a lower opportunity cost, there can be an increase in economic welfare for all countries. #ZMODELER 3 EXPORTING HELP FREE#
In more detail, the benefits of free trade include: Free trade means that countries can import and export goods without any tariff barriers or other non-tariff barriers to trade.Įssentially, free trade enables lower prices for consumers, increased exports, benefits from economies of scale and a greater choice of goods.
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