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I’m trying to study for my Economics course and I need some help to understand this question.

Complete paraphrasing of answers with changing of sentence structure

Assignment Questions

Q. 1. During the Second World War, Germany’s factories were decimated. It also suffered many human casualties, both soldiers and civilians. How did the war affect Germany’s production possibilities curve?

Q. 2. What assumptions about the economy must be true for the invisible hand to work? To what extent are those assumptions valid in the real world?

Q. 3. Are differences in geography behind the differences in absolute advantages?

Answer: –

– Q.1: During World War II, most of the resources in Germany were shifted from consumer production into military production in order to fulfill the needs of the war. In addition, millions of German Men, which represented a huge proportion of German human capital, were killed in the war. Moreover, many other resources, especially the physical capital, were damaged due to the unstoppable attacks from the Allied Forces, which resulted in a huge collapse in many industries. Adding all these factors together, we can conclude that Germany lost enormous amounts of resources, which can be represented by a big shift inwards for Germany’s production possibilities curve.

– Q.2: The market is driven by two main powers which comprise the idea of the invisible hand.
The first power is self-interest which drives the consumers, and the second one is competition which drives businesses. Both self-interest and competition act as an invisible hand in the market, and work on pushing both parties to obtain as much gains as they could.

If we took a deeper look at our real world, we would notice how true and valid the idea of invisible hand is. Self-interest makes the consumer search for the best choice that he could get by checking all the available alternatives for his desired product among the producers.
Competition, on the other hand, drives the companies to produce their goods at the highest possible quality and cut their prices down in order to maximize their profits, which would eventually benefit the consumers as well.

– Q.3: The absolute advantage is the country’s or firm’s ability to produce greater amounts of goods and services than others by using the same amount of resources. Geography plays a key role in the firm’s or country’s absolute advantage in producing a particular good. For Example, Switherland has no maritime outlets, which is a big challenge to that country when it comes to shipping and exporting its goods. As a result, it gathered all available resources that it has and channeled it towards light industries, such as producing fancy watches. Over the last few decades, Switherland has developed an absolute advantage in producing watches, which would easier for Switherland to use airplanes in order to transport this product.

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