What is free trade?

Question

What is free trade?

BlackTom AI · Accepted Answer

First, let's restate the scenario to be crystal clear about what is being evaluated. The question asks: What is free trade?
Option a: 'a. A situation in which a government's central bank exchanges currency with another country's central bank' This describes currency exchange between central banks, which is about monetary policy and exchange-rate arrangements, not about restrictions on trade in goods or services. So this is not the definition of free trade.
Option b: 'b. A policy whereby a government imposes tariffs and quotas on imports, in order to protect local industries' This describes protective trade policy, i.e., protectionism. Free trade, by contrast, argues against such restrictions, so this statement is the opposite of free trade.
Option c: 'c. A policy whereby governments do not attempt to restrict imports from, or exports to, other countries.' This captures the core idea of free trade: minimal or no government-imposed barriers to international exchange of goods and services. It aligns with the standard definition used in economics and policy discussions.
Option d: 'd. A situation in which consumers obtain free products from foreign nations' This implies products are free of charge, which is not a defining feature of free trade. Free trade concerns barriers and policies, not prices paid by consumers for products, and it does not imply that goods are provided at no cost.
To deepen the contrast, consider the intent behind each option: options a and d confuse the concept with monetary operations or freebies, while option b describes protectionist measures that free trade seeks to minimize. Option c directly aligns with the principle of reducing or removing trade barriers like tariffs and quotas, enabling freer exchange across borders. Each alternative emphasizes a different aspect of international economics, so the only option that matches the standard definition of free trade is the one describing non-restriction of imports and exports.

MUF0062 Economics Unit 2 - Semester 2, 2025 Quiz - International Trade.

What is free trade?

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