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In addition to the positive welfare effects that free trade has on an economy, there are a variety of other benefits of international trade. Consider the following scenario:Without free trade, Rooby has market power as a local producer. Once free trade is implemented in the local economy, Rooby is no longer able to raise its prices above competitive levels.1. The previous scenario represents which of the following benefits of free trade?A. Increased variety of goodsB. Enhanced flow of ideasC. Increased competitionD. Lower costs through economies of scale

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alinakincsem

Answer:

The correct answer is option C. Increased competition

Explanation:

Free trade means that different small scale and big scale businesses are now allowed to enter into economies in which they might not have been able to penetrate earlier.

Rooby is unable to raise prices because free trade has allowed different producers of same products to enter into same economies and with the increase in competition.

Companies cannot price their products as per their wishes and loot the customers. If they charge too high, there is a lot of other companies which can take their place easily. It helps to maintain the balance in the economy.

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