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One of the most debated topics in economics is whether governments should promote free trade or use protectionist measures to shield domestic industries from foreign competition. This lesson examines the arguments on both sides, the main instruments of protection, and the role of the World Trade Organisation (WTO) in regulating international trade.
Free trade occurs when goods and services move between countries without government-imposed barriers such as tariffs, quotas, or subsidies. Under free trade, the pattern of trade is determined by comparative advantage and market forces.
Key Definition: Free trade is the exchange of goods and services between countries without the imposition of trade barriers such as tariffs, quotas, or regulatory restrictions.
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