Answer to Question 1
C
Answer to Question 2
a. Mercantilism suggests that exports are good and imports are bad. Mercantilists believed that national prosperity results from a positive balance of trade, achieved by maximizing exports and minimizing imports. They argued that the nation's power and strength increase as its wealth increases. In essence, mercantilism underlies the rationale for a nation's attempt to run a trade surplus, that is, to export more goods than it imports.
b. Free-trade advocates the relative absence of restrictions to flow of goods and services between nations. Although some groups, such as labor unions and farmers, support neo-mercantilism, free trade is the preferred choice by most nations for a number of reasons.
c. Free trade is advocated because consumers and firms can more readily buy the products they want. The prices of imported products tend to be lower than for domestically produced products (because access to world-scale supplies forces prices down, mainly from increased competition; or because the goods are produced in lower-cost countries). Lower-cost imports help reduce the expenses of firms, thereby raising their profits (which may be passed on to workers in the form of higher wages). Lower-cost imports help reduce the expenses of consumers, thereby increasing their living standards. Unrestricted international trade generally increases the overall prosperity of poor countries.
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