Suppose there are two island nations: Micronesia and Macronesia. You advice the

Question

Suppose there are two island nations: Micronesia and Macronesia. You advice the Queen of Macronesia on trade policy. The queen claims that Macronesia has no need for trade with Micronesia because Macronesia is a much larger island and can produce more of every good than Micrnesia.

a) Is the Queen's argument against trade based upon nation size correct under any circumstances? Explain why or why not.

b) Are there any circumstances in which it is impossible for both Micronesia and Macronesia to gain from trade?

c) If so, identify the necessary conditions.

Explanation / Answer

1) Today no country in the world is self-sufficient in the production of certain goods it directly or indirectly trades with another country trade arise because human wants are unlimited and resources are limited in nature and thus the queen's argument is invalid

2) International trade between the counties benefit the both counties because of resources of the country better utilized, the consumer gets the variety of goods cheaper price.

3) The above facts clearly show that these are the necessary condition which international trade arise.

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