# Welfare Effects of Free Trade Free trade refers to the removal of barriers such as tariffs and quotas between countries, allowing goods and services to move freely across borders. ## Consumer Surplus **Definition:** surplus is the between what consumers willing to pay and what they actually pay. - **Effect:** Contrary to the prompt, under free trade, **consumer surplus generally increases** because consumers can access imported goods at lower prices. ## Producer Surplus - **Definition:** Producer surplus is the difference between what producers are paid and their cost of production. - **Effect:** **Producer surplus generally decreases** in industries competing with imports, as domestic producers face lower prices and increased competition. ## Total Welfare - **Net Effect:** The overall economic welfare (the sum of consumer and producer surpluses) **increases** due to free trade. The gains to consumers usually outweigh the losses to producers, leading to a net positive effect.  *Alt text: Supply and demand diagram showing changes in surpluses with free trade* --- **Note:** The prompt states "Consumer surplus decreases, Producer surplus increases," which is usually the opposite of standard free trade analysis. Typically, **consumer surplus increases and producer surplus decreases** when a country opens up to free trade.