Chapter 1
Question 1: What factors explain why the worlds trading nations have become increasingly interdependent, from an economic and political viewpoint, during the post-World War II era?
The world trading nations have become increasingly interdependent because of the formation of the European community during the 1950s. In the period of 1960s the rising importance of multinational corporations helped to increase the worlds trading nation’s interdependence. While during the 1970s the world trading nations increasing interdependence was helped by the market power in world oil markets. Finally, the world trading nations increasing interdependent was affected by the creation of the Euro during the twenty first century.
Chapter 2
Question 3: Develop a arithmetic example that illustrates how a nation could have an absolute disadvantage in the production of two goods and could still have a comparative advantage in the production of one of them.
Question 8: What factors underlie whether specialization in production will be partial or complete on an international basis?
Considering the constant cost conditions, the production possibilities schedule is a straight line. Domestic relative prices are determined exclusively by a nations supply conditions. Production gains arise from the reallocation of existing resources or static gains from specialization. A complete specialization of a country in the production of a single commodity may occur in the case of constant costs if the country is at a comparative advantage. In the real world, nations tend to experience increasing cost conditions. Thus the production possibilities schedules are drawn concave to the diagrams origin. Relative product prices in each country are determined by both supply and demand factors. Complete specialization in production is improbable in the case of increasing costs. Besides that the