Suggested Answers of BT2 Revision Package - ASKnLearn

exceed 5 shoes and lower than 10 shoes. In terms of price of shoes 1 shoe = 0.125machine which is a mutually beneficial trade price for both countries. Terms of tradedetermines whether there is a basis for trade although comparative advantage exists.TOT also determines the extent of the gain of trade.2. Explain free trade and the benefits of free trade as a basis for its promotion.a. Free trade is a system in which goods, capital, and labor flow freely between nations,without barriers which could hinder the trade process.b. By encouraging nations to freely exchange goods, free trade can foster internationalcooperation and raise standard of living.c. Reducing tariff barriers leads to trade creation. Trade creation occurs whenconsumption switches from high cost producers to low cost producers.d. The removal of tariffs leads to lower prices for consumers and an increase in consumersurplus.e. Increased exports: as well as benefits for consumers importing goods, firms exportinggoods where the country has a comparative advantage will also see a big improvementin economic welfare. Lower tariffs on the country’s export will enable a higher quantityof export boosting jobs and economic growth.f. Economies of scale: if countries can specialize in certain goods they can benefit fromeconomies of scale and lower average costs, this is especially true in industries withhigh fixed costs or that require high levels of investment. The benefits of economiesscale will ultimately lead to lower prices for consumers.g. Increased competition: With more trade domestic firms will face more competition fromabroad therefore there will be more incentives to cut costs and increase efficiency.h. Trade is an engine of growth: World trade has increased significantly, causing this tobe one of the big contributors to economic growth.L3L2L1Clear explanation of all required concepts with links to the economic basis forspecialization and free trade.An explanation of comparative advantage without links to the basis forspecialization and free tradeOR explanation of only the benefits of Free trade.For an answer which has some basic correct facts such as unexplainedcomparative advantage and benefits of free trade.