ABSTRACT
Governments have a variety of trade policy instruments to take advantage of international trade, on the one hand, and to avoid or at least minimize its harmful effects, on the other. After explaining the meaning and goals of trade policy and before turning to the role of multilateral organizations in the formulation of trade policies, a brief analysis of the pros and cons of free trade is warranted. Economic indicators, in turn, measure the effect of trade policies on economic variables such as economic growth, the growth of exports and imports, the share of world trade, and the terms of trade. Ricardo's real contribution was to show that even if one country produces both goods at cheaper costs, trade would still be advantageous due to the theory of absolute advantage. The chapter also presents an overview of key concepts discussed in this book.
