Question

1. What is rational choice, and which perspective of IPE does it support?
2. In what way do both the provision of public goods and prisoners' dilemma demonstrate "collective action problems"?
3. Who is Adam Smith? What was Adam Smith’s idea of international Trade?
4. When did Neoliberalism emerge, and why? How did it differ from the liberalism of Adam Smith?
5. Who is John Maynard Keynes?
6. What are the similarities and differences among orthodox, interventionist, and institutional liberals?

Answer 1

Rational choice implies taking into account all the possible information while making a decision. In IPE, rational choice implies maximization of both consumer surplus and producer surplus at the equilibrium price and quantity. Public good and prisoners dilemma depict collective problem because they cause market failure. Whereby, an inferior outcome is attained because the true price of a good/service is not depicted.

Adam Smith is classical economist, who believed that trade always makes a nation rather off instead of a close economy. Smith believed in the self correcting market force known as the invisible hand, that corrects any distortion of price in the market. Smith also believes that supply is driving the whole market rather than the demand.

John Maynard keynes is the father of Keynesian economics. Who believed in the demand side factor as being the driver of the economy. He believed in the institutional approach, where government intervention is necessary to resolve disruption in the market. For instance, During the 1930s depression government needs to spend in transfer so that demand can again pickup.

Institutional liberals believe in the free market forces should determine the price and quantity in the market. There is no need of government intervention, apart from providing transparent information to all the participants in the market.