Free trade can be defined as the free access of the market by individuals without any restriction or any trade barriers that can obstruct the trade process such as taxes, tariffs and import quotas. Free trade in its own way unites and brings people together. Most individuals love the concept of free trade because it gives them the ability to move freely and interact in the market. The whole idea of free trade is that it lowers the price for goods and services by promoting competition. Domestic producers will no longer be able to rely on government law and other forms of assistance, including quotas which essentially force citizens to buy from them. The producers will have to enter the market and strive into to obtain profit.
Free trade was first observed by Adam smith in 1776. “These artificial constraints to free trade are detrimental to a society” (Adam Smith). Until his book was published so many people had different skeptic about free trade. As a result of Adam Smith's book titled Wealth of Nations, free trade achieved an intellectual and rational status supreme to any other principle in the field of economics.
Another economist Douglas Irwin wrote a book titled “Against the Tide”. The book is an Intellectual History of Free Trade; it is an interesting, educational account of how free trade appeared and of how the concept of free trade has coped with two centuries of attacks and criticism.
The behavior of an economy is reflected in the behavior or nature of the individuals and firms that make up the economy. So by studying how the individuals and firms act we can be able to understand the economy. We begin our study of free trade by understanding the four principles of individual decision making.
Individual’s make their decisions by trading off one goal against another. A good example of trading off is how a buyer allocates his time when buying goods. He can either buy rice or beans or cassava and so much more and for every hour he spends buying rice he gives up an hour he could have used to buy beans or cassava. “Trade off can simply be defined as giving up something that you like to get something that you like” (Principle of microeconomics).
The second principle of how people make decisions is by realizing that the cost of something is what you give up to get it. Due to the fact that people generally face trade-offs, decision making requires comparing the costs and benefits analysis of other alternative courses of action. When making decision you must have an opportunity cost which is what you give up to obtain something else.
The third principle of how people make decisions is that rational people think at the margin. Individuals and firms can make better decisions by thinking at the margin and by comparing the marginal benefits with the associated marginal costs of a decision. “A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost” (Principles of microeconomics).