... of the market. This policy will lead to enhanced Aggregate Demand for the producing nation (C+I+G +(X-M)) threw export-led growth, and will enhance the overall welfare via the multiplier effect, which in turn can lead to a much bigger effect on equilibrium output and employment. This is illustrated in figure 1. by an outward shift from AD1 to AD2. . Figure 1. The second and perhaps the most important argument in favour of free trade is that based on the theory of comparative advantage. It states that "If each country specializes in those goods and services where they have an advantage, then total output and economic welfare can be increased. This is true even if one nation has an absolute advantage over another country"2. To fully understand the concept we must apply the theory to real life. To recognize which country should specialize in which product we must work out the ...

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