Final answer:
If terrorism ended and nations adopted free trade, bond prices would likely fall due to decreased demand for safe-haven assets and possibly higher interest rates from economic growth. The equilibrium price and quantity would shift from being domestically determined to being influenced by global supply and demand once trade is allowed.
Step-by-step explanation:
If terrorism ended and the world's nations unilaterally disarmed and adopted free trade policies, we would likely see a significant impact on bond prices. In a scenario where global security risks diminish and countries move towards peaceful and open trade relationships, investors would perceive a lower risk environment. This reduced perception of risk would typically lead to a decrease in demand for safe-haven assets such as government bonds, causing bond prices to fall. Conversely, it could stimulate greater economic growth and investment in other areas, leading to higher interest rates as central banks move to control inflation, which would also contribute to falling bond prices.
In a world without trade, the equilibrium price and quantity for goods and services in each country would be determined by the domestic supply and demand for those goods and services. In the absence of trade, there would be no import or export prices to influence the domestic market. However, once trade is allowed to occur, the equilibrium price and quantity in each country would be influenced by global supply and demand, potentially leading to more efficient allocation of resources and potentially lower prices for consumers if goods are imported from countries where they can be produced more cheaply.
As barriers to trade are reduced, equilibrium prices and quantities will adjust to reflect the new levels of supply and demand brought about by international trade, often resulting in price convergence between trading countries.