Final answer:
True, free trade increases consumer choice and typically results in lower prices due to competition. The second part of the statement is generally false since free trade often leads to price reduction in competitive markets. Free trade enhances productivity and wage levels, while trade barriers tend to increase prices and reduce wages.
Step-by-step explanation:
The statement that allowing free trade increases the number of producers from which each consumer can choose is true. Free trade expands the market, giving consumers access to a wider array of goods and services, often at lower prices due to increased competition and efficiency. However, the idea that free trade allows firms to set higher prices is generally false. Free trade introduces more competition, which tends to lower prices for consumers. Firms must often reduce prices to remain competitive in a global market.
Free trade leads to enhanced productivity by allowing workers and firms to specialize according to their comparative advantage, which results in the increase of the overall amount that an economy produces. This typically leads to higher average wages, as the demand for labor shifts to the right, reflecting the increased desirability and productivity of workers.
By contrast, barriers to trade such as tariffs and quotas, typically raise prices for consumers and reduce the average level of wages in the economy because they limit the size of the market and reduce the efficiency gains from specialization. Additionally, if trade barriers are removed and imports can be sold at extremely low prices, it may drive domestic firms out of the industry, potentially allowing importers to raise prices once they establish a stronger market position.