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, increased production levels, efficiency and employment all together positively impact the economics of free trade country as it results in rising living standards and increased real incomes (Edge, n.d.).
In case of global or regional economic recession, the country’s economy is more dependent on global economy and therefore it is less stable in terms of export incomes, GDP, and employment in export-oriented industries.
In the developing countries free trade has a high risk of “eating” smaller national producers/companies by large international giants as competition between these two parties would not be equal. In case there are no measures undertaken by government in order to protect national producer/manufacturer there is a high risk of occupation of the market by foreign goods (Edge, n.d.).
(b) Assume that two countries are competitors in the international trade markets. The two governments are thinking about whether it is profitable to adopt a free trade policy or not. The entries in the table below are showing (in millions of pounds) the gains of each policy. Find the Nash equilibrium. Analyse how you conclude to your answer.
The table below illustrates, that when there are imposed restrictions (tariffs) for both countries, both A and B countries lose. If country A introduces free trade policy, then country B will be better off with imposed restrictions as it gets 70 million of pounds with restrictions and only 60 million with free trade. If country A imposes restrictions, then country B is better off with high tariffs, as it will get 20 million of pounds with free trade and 30 million with imposed restrictions. If country B introduces free trade, then country A is better off with free trade as it will get 60 million with free trade and 20 million with imposed restrictions. If country B imposes restrictions, then country A is better off with imposed restrictions, as it gets 30 million imposed restrictions and only 20 million from free trade.
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