Question

With free trade, it ______:

	a.	tends to increase the price of products
	b.	tends to decrease the price of products
	c.	has no impact on the price of products
	d.	tends to reduce the consumption of products

Answer 1

Free trade is undertaken on basis of comparative advantage.

Comparative advantage implies the production of a good at lower opportunity cost.

A country when engages in free trade tends to import that good in whose production it does not enjoys the comparative advantage. Due to this, it would be able to procure such goods from other countries at lower prices.

So, import of such goods at lower price tends to decrease the price of such good in the importing country.

Thus,

It can be stated that with free trade, price of products tends to decrease.

Hence, the correct answer is the option (b).