Free Trade

Definition

Free trade refers to the unrestricted flow of goods and services between countries without any barriers such as tariffs or quotas. It allows for increased competition, specialization, and efficiency in production.

Analogy

Imagine a world where you can freely exchange your video game collection with your friends without any restrictions. This is similar to free trade, where countries can exchange goods and services without limitations.

Related terms

Comparative Advantage: Comparative advantage is when a country can produce a good or service at a lower opportunity cost than another country.

Tariffs: Tariffs are taxes imposed on imported goods, making them more expensive and less competitive in the domestic market.

Quotas: Quotas are limits set on the quantity of goods that can be imported into a country. They restrict the amount of foreign competition in the domestic market.