10. Benefits of free-trade agreements Suppose that Indonesian consumers previous

Question

10. Benefits of free-trade agreements Suppose that Indonesian consumers previously faced higher prices on shoes than they do under the free-trade agreement to which the nation currently adheres because there were only a few domestic firms supplying shoes to the Indonesian market due to trade restrictions. Which of the following benefits of intemational trade describes this free-trade benefit that Indonesian consumers enjoy? O Enhanced flow of ideas O Increased competition Lower unit costs through economies of scale O Increased variety of goods Indonesian consumers have enjoyed more consumer surplus from their shoe purchases than they did before their nation adopted an international agreement on trade restrictions. That agreement is enforced by an institution known as the

Explanation / Answer

Given that only few firms are supplying commodities in the market when trade is allowed there will be increased competition as more firms will now enter the Indonesian market. Increased competition will also result in increased production so there will be different variety of goods and services for the consumers. Increased competition and increased variety of goods are to be selected.

The agreement that is imposed by one institution is called a trade agreement and the institution is called World Trade Organisation.

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