What is the loss of "Free trade"?
(i) Adverse effect on infant industries
(ii) Adverse effect on diversification of Industries
(iii) Increasing impact of Foreign capital
(iv) Loss to consumers

Question

What is the loss of "Free trade"? 
(i) Adverse effect on infant industries 
(ii) Adverse effect on diversification of Industries 
(iii) Increasing impact of Foreign capital 
(iv) Loss to consumers

Accepted Answer

The correct option is 1:

Free trade, while beneficial in theory for maximizing global efficiency and consumer welfare, carries specific disadvantages, especially for developing or less-diversified economies. The first three points listed are widely recognized as potential losses associated with moving towards free trade without protective measures. Firstly, the **Adverse effect on infant industries (i)** is a core argument against pure free trade. New or "infant" industries in a domestic economy cannot compete with established, globally dominant foreign firms and may be wiped out before they have a chance to achieve economies of scale. Secondly, the **Adverse effect on diversification of Industries (ii)** is a concern because a country may concentrate solely on producing goods where it has a current comparative advantage, leading to over-specialization and making the economy vulnerable to global price fluctuations for that specific product. Thirdly, the **Increasing impact of Foreign capital (iii)** refers to the risk that unchecked foreign investment and competition may lead to economic dependency, where major industries fall under the control of foreign entities, potentially harming national economic interests and priorities. Therefore, these three factors represent actual or potential "losses" or risks of unmanaged free trade.

The incorrect option is 2:
This option includes (ii), (iii), and (iv). While (ii) and (iii) are genuine concerns, **(iv) Loss to consumers** is generally incorrect in the context of free trade. Free trade typically benefits consumers through lower prices, increased variety, and higher quality products due to increased competition and efficiency from international producers.

The incorrect option is 3:
This option includes (i), (ii), and (iv). The inclusion of **(iv) Loss to consumers** makes this option incorrect for the same reason explained above: free trade typically results in gains, not losses, for domestic consumers.

The incorrect option is 4:
This option includes all four points: (i), (ii), (iii), (iv). Since **(iv) Loss to consumers** is usually seen as a benefit (gain) of free trade, not a loss, the inclusion of this point makes the entire option inaccurate as a complete list of losses.