Free markets, global tariffs and the IMF/World Bank

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Role of free markets and reduction in global tariffs

free trade area is a grouping of countries within which tariffs and non-tariff trade barriers between the members are generally abolished but with no common trade policy toward non-members. The North American Free Trade Area (NAFTA) and the European Free Trade Association (EFTA) are examples of free trade areas.

Tariffs are a tax placed by the government on imports. They raise price for consumers, lead to a decline in imports, and can lead to retaliation by other countries.

Advanatges

Consumers have more choice- without tariffs consumers have access to a greater variety of products, often for cheaper prices without the use of tariffs. this can enable expansion into LEDC markets as they can afford and import new goods into their country and use new goods and service to their advanatge to further develop.

Comparative advantage- countries can specialise in producing a good or service at a lower oppurtunity cost than another country. in a free trade area with low/no tariffs countries can benfit by being able to provide goods they are good at makking/providing. As they are made most effiecntly prices are lower, so purchasing countries beneit from low prices. 

Economic growth- by specialsing countries in free trade areas are able to maintain high levels of productivity. This ensures that for all countries involved there will alsways been demand for jobs increasing employment and creating multipliers in these areas. LEDC countries attempting to grow will appreciate this most. In additon no tariffs creates productive competition so countries are always inovating to become more efficent and keep prices

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