Deck 10: Strategic Trade Policy

Question 1

-Refer to Figure 10.1, which summarizes the payoffs to two aerospace companies that areconsidering investing $20 billion to develop a new, technologically advanced,commercial jumbo jet airliner for sale in the global marketplace. Payoffs are in billionsof dollars. If larger payoffs are preferred, the Nash equilibrium strategy profile for this game is:

A) {Produce, Produce}.
B) {Produce, Don't produce}.
C) {Don't produce, Produce}.
D) {Don't produce, Don't produce}.
E) This game does not have a unique Nash equilibrium.

Answer 1

This game does not have a unique Nash equilibrium.

Question 2

-Refer to Figure 10.1, which summarizes the payoffs to two aerospace companies that are considering investing $20 billion to develop a new, technologically advanced, commercial jumbo jet airliner for sale in the global marketplace. Payoffs are in billions of dollars. Suppose that the U.S. government offers Air America a $15 billion production subsidy. If larger payoffs are preferred, the Nash equilibrium strategy profile for this game is:

A) {Produce, Produce}.
B) {Produce, Don't produce}.
C) {Don't produce, Produce}.
D) {Don't produce, Don't produce}.
E) This game has multiple Nash equilibrium.

Answer 2

{Produce, Don't produce}.

Question 3

-Refer to Figure 10.1, which summarizes the payoffs to two aerospace companies that are considering investing $20 billion to develop a new, technologically advanced, commercial jumbo jet airliner for sale in the global marketplace. Payoffs are in billions of dollars. Suppose that the U.S. government offers Air America a $4 billion production subsidy. If larger payoffs are preferred, the Nash equilibrium strategy profile for this game is:

A) {Produce, Produce}.
B) {Produce, Don't produce}.
C) {Don't produce, Produce}.
D) {Don't produce, Don't produce}.
E) This game does not have a unique Nash equilibrium.

Answer 3

This game does not have a unique Nash equilibrium.

Question 4

-Refer to Figure 10.1, which summarizes the payoffs to two aerospace companies that are considering investing $20 billion to develop a new, technologically advanced, commercial jumbo jet airliner for sale in the global marketplace. Payoffs are in billions of dollars. Suppose that the U.S. and European Union governments offer their respective companies $5 billion production subsidies. If larger payoffs are preferred, the Nash equilibrium strategy profile for this game is:

A) {Produce, Produce}.
B) {Produce, Don't produce}.
C) {Don't produce, Produce}.
D) {Don't produce, Don't produce}.
E) This game does not have a unique Nash equilibrium.

Question 5

-Refer to Figure 10.1, which summarizes the payoffs to two aerospace companies that are considering investing $20 billion to develop a new, technologically advanced, commercial jumbo jet airliner for sale in the global marketplace. Payoffs are in billions of dollars. Suppose that the U.S. government offers Air America a $5 billion production subsidy. If larger payoffs are preferred, the Nash equilibrium strategy profile for this game is:

A) {Produce, Produce}.
B) {Produce, Don't produce}.
C) {Don't produce, Produce}.
D) {Don't produce, Don't produce}.
E) This game does not have a unique Nash equilibrium.

Question 6

-Refer to Figure 10.2, which summarizes the payoffs to three aerospace companies that are considering investing $20 billion to develop a new, technologically advanced, commercial jumbo jet airliner for sale in the global marketplace. Payoffs are in billions of dollars. If larger payoffs are preferred, the Nash equilibrium strategy profile for this game is:
I. {Produce, Produce, Produce}.
II. {Don't produce, Produce, Produce}.
III. {Don't produce, Don't produce, Don't produce}.
IV. {Produce, Don't produce, Produce}.
V. {Produce, Produce, Don't produce}.
Which of the following is correct?

A) II only.
B) III only.
C) V only.
D) IV and V only.
E) II, IV, and V only.

Question 7

-Refer to Figure 10.2, which summarizes the payoffs to three aerospace companies that are considering investing $20 billion to develop a new, technologically advanced, commercial jumbo jet airliner for sale in the global marketplace. Payoffs are in billions of dollars. Suppose that the U.S. government offers Air America a $2 billion production subsidy. If larger payoffs are preferred, the Nash equilibrium strategy profile for this game is:
I. {Produce, Produce, Produce}.
II. {Don't produce, Produce, Produce}.
III. {Don't produce, Don't produce, Don't produce}.
IV. {Produce, Don't produce, Produce}.
V. {Produce, Produce, Don't produce}.
Which of the following is correct?

A) II only.
B) III only.
C) V only.
D) IV and V only.
E) II, IV, and V only.

Question 8

-Refer to Figure 10.2, which summarizes the payoffs to three aerospace companies that are considering investing $20 billion to develop a new, technologically advanced, commercial jumbo jet airliner for sale in the global marketplace. Payoffs are in billions of dollars. Suppose that the U.S. and European Union governments offer Air America and Europe Air $2 billion in production subsidies. If larger payoffs are preferred, the Nash equilibrium strategy profile for this game is:
I. {Produce, Produce, Produce}.
II. {Don't produce, Produce, Produce}.
III. {Don't produce, Don't produce, Don't produce}.
IV. {Produce, Don't produce, Produce}.
V. {Produce, Produce, Don't produce}.
Which of the following is correct?

A) II only.
B) III only.
C) V only.
D) IV and V only.
E) II, IV, and V only.

Question 9

-Refer to Figure 10.2, which summarizes the payoffs to three aerospace companies that are considering investing $20 billion to develop a new, technologically advanced, commercial jumbo jet airliner for sale in the global marketplace. Payoffs are in billions of dollars. Suppose that all three countries offer $2 billion in production subsidies. If larger payoffs are preferred, the Nash equilibrium strategy profile for this game is:
I. {Produce, Produce, Produce}.
II. {Don't produce, Produce, Produce}.
III. {Don't produce, Don't produce, Don't produce}.
IV. {Produce, Don't produce, Produce}.
V. {Produce, Produce, Don't produce}.
Which of the following is correct?

A) I only.
B) II only.
C) III only.
D) IV and V only.
E) II, IV, and V only.

Question 10

_____ is when a country exports and imports the same, or similar, goods and services.

A) Bilateral trade
B) Multilateral trade
C) Strategic trade
D) Intraindustry trade
E) Autarky

Question 11

Suppose that the demand for a product produced and sold by a single U.S. firm in the U.S. market is Q_USUS = 10 !2P^US, where output is in million of units. If the marginal cost of production is $2 per unit, the profit-maximizing level of output is:

A) 1 million.
B) 2 million.
C) 3 million.
D) 4 million.
E) None of the above.

Question 12

Suppose that the demand for a product produced and sold by a single U.S. firm in the U.S. market is Q_USUS = 10 !2P^US, where output is in million of units. If the marginal cost of production is $2 per unit, the market price per unit is:

A) $2.00.
B) $2.50.
C) $3.50.
D) $4.00.
E) $5.50.

Question 13

Suppose that the demand for a product produced and sold by a single U.S. firm in the U.S. market is Q_USUS = 10 !2P_US, where output is in million of units. If the marginal cost of production is $2 per unit, the value of consumer surplus in the U.S. market is:

A) $2.25 million.
B) $5.50 million.
C) $9.75 million.
D) $10.5 million.
E) None of the above.

Question 14

A U.S. company and a Japanese company sells an identical product in the U.S. market. The inverse demand equation for this product is P_US = 5 !0.2(Q_USUS + Q_{US J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_USUS = 10 !0.5Q_{US J} and Q_{US J} = 7.5 !0.5Q_USUS, respectively. The Cournot-Nash equilibrium {Q_USUS, Q_{US J} } in the U.S. market is:

A) {8.33, 3.33}.
B) {1.66, 6.66}.
C) {6.66, 1.66}.
D) {3.33, 8.33}.
E) None of the above.

Question 15

A U.S. company and a Japanese company sells an identical product in the U.S. market. The inverse demand equation for this product is P_US = 5 !0.2(Q_USUS + Q_{US J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_USUS = 10 !0.5Q_{US J} and Q_{US J} = 7.5 !0.5Q_USUS, respectively. The price of this product in the U.S. market is:

A) Around $2.67.
B) Around $3.33.
C) Around $4.67.
D) Around $5.33.
E) None of the above.

Question 16

A U.S. company and a Japanese company sells an identical product in the U.S. market. The inverse demand equation for this product is P_US = 5 !0.2(Q_USUS + Q_{US J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_USUS = 10 !0.5Q_{US J} and Q_{US J} = 7.5 !0.5Q_USUS, respectively. Consumer surplus in the U.S. market is:

A) Around $27.2 million.
B) Around $13.6 million.
C) Around $6.8 million.
D) Around $3.4 million.
E) Around $1.7 million.

Question 17

A U.S. company and a Japanese company sells an identical product in the Japanese market. The inverse demand equation for this product is P_J = 5 !0.2(Q_JUS + Q_{J J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_JUS = 5 !0.5Q_{J J} and Q_{J J} = 7.5 !0.5Q_JUS, respectively. The Cournot-Nash equilibrium {Q_{J US}, Q_JJ} in the Japanese market is:

A) {6.67, 6.67}.
B) {3.33, 8.33}.
C) {8.33, 3.33}.
D) {1.67, 6.67}.
E) {6.67, 1.67}.

Question 18

A U.S. company and a Japanese company sells an identical product in the Japanesemarket. The inverse demand equation for this product is P_J = 5 !0.2(Q_JUS + Q_{J J}).Suppose that the best-response functions of the U.S. and Japanese companies are Q_JUS = 5 !0.5Q_{J J} and Q_{J J} = 7.5 !0.5Q_JUS, respectively. The price of this product in the Japanese market is:

A) Around $1.67.
B) Around $2.33.
C) Around $2.67.
D) Around $3.33.
E) None of the above.

Question 19

A U.S. company and a Japanese company sells an identical product in the Japanese market. The inverse demand equation for this product is P_J = 5 !0.2(Q_JUS + Q_{J J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_JUS = 5 !0.5Q_{J J} and Q_{J J} = 7.5 !0.5Q_JUS, respectively. Consumer surplus in the Japanese market is:

A) Around $9 million.
B) Around $7 million.
C) Around $6 million.
D) Around $4.5 million.
E) Around $3 million.

Question 20

A U.S. company and a Japanese company sells an identical product in the U.S. market. The inverse demand equation for this product is P_US = 8 !0.4(Q_USUS + Q_{US J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_USUS = 7.5 !0.5Q_{US J} and Q_{US J} = 9.375 !0.5Q_USUS, respectively. The Cournot-Nash equilibrium {Q_USUS, Q_{US J} } in the U.S. market is:

A) {8.33, 3.33}.
B) {5.66, 7.25}.
C) {4.65, 4.50}.
D) {3.75, 7.50}.
E) {2.50, 8.75}.

Question 21

A U.S. company and a Japanese company sells an identical product in the U.S. market. The inverse demand equation for this product is P_US = 8 !0.4(Q_USUS + Q_{US J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_USUS = 7.5 !0.5Q_{US J} and Q_{US J} = 9.375 !0.5Q_USUS, respectively. The price of this product in the U.S. market is:

A) Around $2.67.
B) Around $3.50.
C) Around $4.50.
D) Around $5.33.
E) None of the above.

Question 22

A U.S. company and a Japanese company sells an identical product in the U.S. market. The inverse demand equation for this product is P_US = 5 !0.2(Q_USUS + Q_{US J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_USUS = 10 !0.5Q_{US J} and Q_{US J} = 7.5 !0.5Q_USUS, respectively. Consumer surplus in the U.S. market is:

A) Around $25 million.
B) Around $30 million.
C) Around $41.5 million.
D) Around $50 million.
E) Around $67 million.

Question 23

A U.S. company and a Japanese company sells an identical product in the Japanese market. The inverse demand equation for this product is P_J = 10 !0.5(Q_JUS + Q_{J J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_JUS = 6 !0.5Q_{J J} and Q_{J J} = 9 !0.5Q_JUS, respectively. The Cournot-Nash equilibrium {Q_JUS, Q_{J J} } in the Japanese market is:

A) {6.66, 2.66}.
B) {2.66, 6.66}.
C) {3.25, 9.45}.
D) {8.15, 6.82}.
E) {2.00, 8.00}.

Question 24

A U.S. company and a Japanese company sells an identical product in the Japanese market. The inverse demand equation for this product is P_J = 10 !0.5(Q_JUS + Q_{J J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_JUS = 6 !0.5Q_{J J} and Q_{J J} = 9 !0.5Q_JUS, respectively. The price of this product in the Japanese market is:

A) $2.67.
B) $3.50.
C) $4.50.
D) $5.00.
E) $6.75.

Question 25

A U.S. company and a Japanese company sells an identical product in the Japanese market. The inverse demand equation for this product is P_J = 10 !0.5(Q_JUS + Q_{J J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_JUS = 6 !0.5Q_{J J} and Q_{J J} = 9 !0.5Q_JUS, respectively. Consumer surplus in the Japanese market is:

A) $25 million.
B) $30 million.
C) $42.5 million.
D) $45 million.
E) $60 million.

Question 26

The purpose of an export subsidy is to:

A) Promote domestic employment.
B) Encourage domestic investment in research and development.
C) Expand overseas markets for domestic production.
D) All of the above may be possible.
E) None of the above.

Question 27

Export subsidies may take the form of:

A) Low-interest-rate loans.
B) Tax relief tied to the value of overseas sales.
C) Below-market prices for productive inputs used to produce exports.
D) Fixed payment per unit of overseas sales.
E) All of the above.

Question 28

Starting from a position of free trade, export subsidies will:

A) Increase domestic producer surplus. Domestic consumer surplus is unchanged.
B) Increase domestic consumer surplus. Domestic producer surplus is unchanged.
C) Increase domestic producer surplus. Domestic consumer surplus is reduced.
D) Increase neither domestic producer surplus nor domestic consumer surplus.
E) Always result in an increase lower domestic national welfare.

Question 29

Starting from a position of free trade, export subsidies will:

A) Always increase domestic national welfare.
B) Sometimes increase domestic national welfare.
C) Never increase domestic national welfare.
D) Always increase national welfare if lost consumer surplus is compensated by an equivalent tax relief financed from increased producer surplus.
E) Always increase national welfare if lost producer surplus is compensated by an equivalent tax relief financed from increase consumer surplus.

Question 30

The benefits of an export subsidy to a domestic producer are:

A) Higher profits for domestic producers and lower prices for domestic consumers.
B) Higher profits for domestic producers and lower prices for foreign consumers.
C) Higher profits for foreign producers and lower prices for domestic consumers.
D) Lower prices for both domestic and foreign consumers.
E) Higher profits for both domestic and foreign producers.

Question 31

-Consider the static game depicted in Figures 10.3, which summarizes producer surpluses in billions of dollars from alternative export-subsidy strategies by the U.S. and Japan. If the export subsidies are intended to benefit producers, the Cournot-Nash equilibrium strategy profile is:

A) {No subsidy, No subsidy}.
B) {No subsidy, Subsidy}.
C) {Subsidy, No subsidy}.
D) {Subsidy, Subsidy}.
E) Answers b or c are correct.

Question 32

-Consider the static game depicted in Figures 10.4, which summarizes consumer surpluses in billions of dollars from alternative export-subsidy strategies by the U.S. and Japan. If the export subsidies are intended to benefit consumers, the Cournot-Nash equilibrium strategy profile is:

A) {No subsidy, No subsidy}.
B) {No subsidy, Subsidy}.
C) {Subsidy, No subsidy}.
D) {Subsidy, Subsidy}.
E) Answers a or d are correct.

Question 33

-Consider the static games depicted in Figures 10.3 and 10.4 which summarize in billions of dollars producer and consumer surpluses from alternative export-subsidy strategies by the U.S. and Japan. If the export subsidies are for the benefit of overall national welfare, the Cournot-Nash equilibrium strategy profile is:

A) {No subsidy, No subsidy}.
B) {No subsidy, Subsidy}.
C) {Subsidy, No subsidy}.
D) {Subsidy, Subsidy}.
E) Answers a or d are correct.

Question 34

-Consider the static games depicted in Figures 10.3 and 10.4 which summarize in billions of dollars producer and consumer surpluses from alternative export-subsidy strategies by the U.S. and Japan. If the export subsidies are for the benefit of national welfare, the Cournot-Nash equilibrium strategy profile is an example of a(n):

A) Focal point equilibrium.
B) Cournot paradox.
C) Prisoner's dilemma.
D) Optimal tariff.
E) None of the above.

Question 35

-Consider the static games depicted in Figures 10.3 and 10.4 which summarize in billions of dollars producer and consumer surpluses from alternative export-subsidy strategies by the U.S. and Japan. If this game is played a finite number of times with a certain end, maximizing national welfare:

A) May be possible with the intervention of a multilateral organization such as the World Trade Organization.
B) May not be possible through bilateral negotiations since it will be in the best interest of both countries to defect.
C) May not be possible due to the end-of-game problem.
D) Answers b and c are correct.
E) All of the above are correct.