Economic Efficiency:

The main source of support for free trade lies in the positive production and consumption efficiency effects. In every model of trade there is an improvement in aggregate production and consumption efficiency when an economy moves from autarky to free trade. This is equivalent to saying that there is an increase in national welfare. This result was demonstrated in the Ricardian model, the Immobile Factor model, the Specific Factor model, and the Heckscher-Ohlin model. Each of these models shows that a country is likely to have greater national output and superior choices available in consumption as a result of free trade. Improvements in production efficiency mean that countries can produce more goods and services with the same amount of resources. In other words, productivity rises for the given resource endowments available for use in production.

To achieve production efficiency improvements resources must be shifted between industries within the economy. This means that some industries must expand while others must contract. Exactly which industries expand and contract will depend upon the underlying stimulus or basis for trade. Different trade models emphasize different stimuli to trade. For example, the Ricardian model emphasizes technological differences between countries as the basis for trade. The factor-proportions model emphasizes differences in endowments, etc. In the real world it is likely that each of these stimuli plays some role inducing the trade patterns that are observed.

Consumption efficiency improvements arise for an individual when changes in the relative prices of goods and services allow the consumer to achieve a higher level of utility. Since the change in prices gives the consumer a choice that he did have before, we can say that consumption efficiency improvements imply that more satisfying choices become available. When multiple varieties of goods are available in a product category then consumption efficiency improvements can mean that the consumer is able to consume greater varieties or is able to purchase a variety that is closer to his ideal.