# Microeconomics

posted by .

Question:

Consider trade relations between the Country A & Country B. Assume that the leaders of the two contries believe the payoffs to altrenative trade policies are as follows:

,,,,,,,,,,,,,,,,,,Country A
,,,,,,,,,,Low Tarriffs|High Tarriffs
,,,,,,,,,,A 25 Billion|A 30 Billion
Country B,,,,,,,,,,,,,|
Low ,,,,,,,,,,,,,,,,,,|
Tarriffs,,B 10 Billion|B 10 Billion
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
High ,,,,,A 10 billion|A 20 Billion
Tarriffs,,,,,,,,,,,,,,|
,,,,,,,,,,B 30 Billion|B 20 Billion

What is the dominate strategy for the Country A?

The maxtrix confuses me. I picked A should be with the High Tariff and gain 30 billion. I am not sure if this is correct?

• Microeconomics -

I do not think you are correct.

First, check; does A have a maximizing strategy which is independent of what B does. If A chooses a low tarriff, the best that A can win is 25 and the worst it could win is 10. If A chooses a high tarriff, the best A can win is 30 and the worst it can win is 20. A's position, right now is uncertain.
Now check B. If B chooses low, the best it can win is 10. If B chooses High, the WORST it can win is 20. So, B will choose a High Tarriff.

Ok, so now A sees that B will choose a high tarriff, it's best call is to choose a low tarriff and gain 25.

## Similar Questions

1. ### Economics

Based on the total world trade share with the given information, find the nations deficit or surplus. country A exports to country B: \$35 country A exports to country C: \$25 country B exports to country A: \$30 country B exports to …
2. ### Microeconomics

Each year, the United States considers renewal of Most Favored nation (MFN) trading status with China. Historically, legislators have made threats of not renewing MFN status because of human rights abuses in China. The game below reflects …

Here is a question on free trade. Country X and Country Z have a free trade agreement. If Country X buys trucks from Country Y and sells the trucks to a car dealer in Country Z, does the buyer need to pay duty on trucks. Why or why …

The demand and supply curves for an import-competing industry in a country are given by: D = 500 – 10P, S = 100 + 10P. Similarly, the respective demand and supply curves of foreign country for this industry are given by D* = 400 …
5. ### economic

Show graphically and explain how a policy that increases the productivity of the labor input in a labor abundant country affects the equilibrium terms of trade between that country and a capital intensive country (assume that L and …
6. ### Literacy

In global trade, when the difference between money coming into a country from exports and money leaving a country due to imports or money flows from other factors is known as the A. balance of payments. C. balance of trade. B. trade …