ABSTRACT
Economists have always been interested in the welfare consequences of international trade and commercial policy. David Ricardo was probably the first economist to present a formal model of trade, which could be construed in two ways: A highly simplified model demonstrating the welfare-wise superiority of free trade over no trade, or as an attempt at explaining the pattern of trade. The welfare ranking of various commercial policies is not an easy task. The difficulty arises due to changes in the distribution in income associated with any change in policy. For example, a movement from a position of no trade to free trade results in a change in the distribution of income. Free trade is defined as a situation in which the international price of commodities is the same as the domestic price of the commodities. In other words, there is no difference between local prices of commodities and the international or world price of the commodities.
