When a country allows free trade:

Question

Quizplus · Accepted Answer

When a country allows free trade, domestic producers have to compete with foreign producers who sell at the world price. As a result, the domestic price will equal the world price. If the domestic price were higher, consumers would just buy from foreign producers who sell at the lower world price. If the domestic price were lower, domestic producers would not be able to cover their costs and would exit the market. Thus, free trade leads to a situation where the domestic price equals the world price.

When a Country Allows Free Trade