Benefits of free-trade agreements Suppose that Indonesian consumers previously faced higher prices on shoes than they do under the free-trade agreement to which the nation currently adheres because there were only a few domestic firms supplying shoes to the Indonesian market due to trade restrictions.

Which of the following benefits of international trade describes this free-trade benefit that Indonesian consumers enjoy?

A. Enhanced flow of ideas
B. Increased competition
C. Lower unit costs through economies of scale
D. Increased variety of goods

B. Increased competition

Explanation:

Due to Free Trade agreements, producers from outside the country are on equal footing with producers in Indonesia barring transportation costs. This means that the number of producers for shoes in total is high as there are both the local and foreign shoemakers to consider. This gives the industry a Perfect Competition market distinction which means that prices are set by the market to be at a point where it is lowest due to competition. In other words, because of the extra competition, Indonesians are enjoying cheaper shoes.

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