EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 8220103632225
Author: PARKIN
Publisher: PEARSON
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Chapter 18, Problem 2IAPA
To determine
To explain:
The best strategy for the United States and for Canada. Also, explain the outcome of the game.
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Consider trade relations between Canada and Mexico. Assume that the leaders of the two countries believe the payoffs
to alternative trade policies are as follows:
Canada High Tariffs
Low Tariffs
Mexico
High Tariffs
Canada trade value = $65
Mexico trade value = $75
Canada trade value = $35
Mexico trade value = $285
Refer to Table 17-4. When this game reaches a Nash equilibrium, what will the value of trade flow benefits be?
Canada $35 and Mexico $285
Canada $65and Mexico $75
Canada $130 and Mexico $5
Low Tariffs
Canada trade value = $140
Mexico trade value = $5
Canada trade value = $130
Mexico trade value = $275
Canada $140 and Mexico $275
Suppose China and the US are deciding whether to join an international agreement to mitigate climate change.
The matrix below contains payoffs that represent each country’s net benefit from their decisions. Use this information to answer Question 24.
CHINA
USA
Join Agreement
Do Not Join Agreement
Join Agreement
(100,100)
(0,125)
Do Not Join Agreement
(125,0)
(25,25)
[24] What does each country decide to do in a Nash equilibrium? AND What is the efficient outcome?
Nash:
Efficient:
In 2003, Saudi Arabia and Venezuela produced an average of 8 million and 3 million barrels of oil a day, respectively. Production costs were about $10 a barrel and the price of oil averaged $28 per barrel. Each country had the capacity to produce an additional 1 million barrels per day. At that time, it was estimated that each country 1-million-barrel increase in supply would depress the average price of oil by $3.
A. Draw a normal form representation of a game where Saudi Arabia has 2 possible actions to produce 8 million or 9 million barrels of oil and Venezuela has 2 possible actions: to produce 3 or 4 million barrels of oil. Fill in the payoffs for each player and action. Draw a table.
B. What action should each country take and why?
C.
Does the asymmetry in the countries' sizes cause them to take different attitudes towards expanding out? Explain why or why not.
Chapter 18 Solutions
EBK FOUNDATIONS OF ECONOMICS
Ch. 18 - Prob. 1SPPACh. 18 - Prob. 2SPPACh. 18 - Prob. 3SPPACh. 18 - Prob. 4SPPACh. 18 - Prob. 5SPPACh. 18 - Prob. 6SPPACh. 18 - Prob. 7SPPACh. 18 - Prob. 8SPPACh. 18 - Prob. 1IAPACh. 18 - Prob. 2IAPA
Ch. 18 - Prob. 3IAPACh. 18 - Prob. 4IAPACh. 18 - Use this information to work Problems 5 to 7. DOJ...Ch. 18 - Use this information to work Problems 5 to 7. DOJ...Ch. 18 - Prob. 7IAPACh. 18 - Which of the following statements is incorrect. In...Ch. 18 - If firms in oligopoly form a cartel, it will...Ch. 18 - Prob. 3MCQCh. 18 - Prob. 4MCQCh. 18 - Prob. 5MCQCh. 18 - Prob. 6MCQCh. 18 - Prob. 7MCQ
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