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1. Export Subsidies (under perfect competition) in a small country a. For a small country, is the logic for why export subsidies provide negative gains different than the logic for why import tariffs provide negative gains? Explain 2. Airbus and Boeing problem again. Suppose Boeing is more efficient at making airplanes than Airbus. Starting from slide 33, Figure 10-9, let’s change the payoff matrix, so that if Boeing and Airbus both produce, Boeing gets +5, instead of -5. And, if Boeing produces, and Airbus does not produce, Boeing gets +125 instead of +100. Will there be a unique equilibrium in this case?

1. Export Subsidies (under perfect competition) in a small country a. For a small country, is the logic for why export subsidies provide negative gains different than the logic for why import tariffs provide negative gains? Explain 2. Airbus and Boeing problem again. Suppose Boeing is more efficient at making airplanes than Airbus. Starting from slide 33, Figure 10-9, let’s change the payoff matrix, so that if Boeing and Airbus both produce, Boeing gets +5, instead of -5. And, if Boeing produces, and Airbus does not produce, Boeing gets +125 instead of +100. Will there be a unique equilibrium in this case?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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1. Export Subsidies (under perfect competition) in a small country
a. For a small country, is the logic for why export subsidies provide negative gains
different than the logic for why import tariffs provide negative gains? Explain
2. Airbus and Boeing problem again. Suppose Boeing is more efficient at making airplanes
than Airbus. Starting from slide 33, Figure 10-9, let’s change the payoff matrix, so that if Boeing
and Airbus both produce, Boeing gets +5, instead of -5. And, if Boeing produces, and Airbus
does not produce, Boeing gets +125 instead of +100. Will there be a unique equilibrium in this
case?

3) International Agreements on the Environment (part 6) Does Trade Help or Harm the Environment? Externalities and Trade (a) Negative Production Externality FIGURE 11-4 Price PA pW a b: Social marginal costs, SMC S D Price (b) Negative Consumption Externality a b S D Social marginal benefits, SMB D₁ Quantity Feenstra/Taylor, International Trade, Se © 2021 Worth Publishers S₁ Qo D₁ Quantity S₁ Qo Panel (a) illustrates a negative production externality, which means that the social marginal cost curve, SMC, lies above the private marginal cost (supply) curve S. With free trade, the price falls from Pª to PW and Home supply falls from Qo to S₁. As a result, the social cost of the externality is reduced by area c, which measures a social gain that is additional to the private gains from trade, area b.
Transcribed Image Text:3) International Agreements on the Environment (part 6) Does Trade Help or Harm the Environment? Externalities and Trade (a) Negative Production Externality FIGURE 11-4 Price PA pW a b: Social marginal costs, SMC S D Price (b) Negative Consumption Externality a b S D Social marginal benefits, SMB D₁ Quantity Feenstra/Taylor, International Trade, Se © 2021 Worth Publishers S₁ Qo D₁ Quantity S₁ Qo Panel (a) illustrates a negative production externality, which means that the social marginal cost curve, SMC, lies above the private marginal cost (supply) curve S. With free trade, the price falls from Pª to PW and Home supply falls from Qo to S₁. As a result, the social cost of the externality is reduced by area c, which measures a social gain that is additional to the private gains from trade, area b.
7) High-Technology Export Subsidies (part 3) "Strategic" Use of High-Tech Export Subsidies Payoff Matrix In Figure 10-9, we show a payoff matrix for Boeing and Airbus, each of which has to decide whether to produce the new aircraft. FIGURE 10-9 Produce Boeing Not produce Produce Airbus Not produce -$5 million -$5 million $100 million $100 million $0 $0 Feenstra/Taylor, International Trade, 5e Ⓒ Payoff Matrix Between Two Firms The lower-left number in each quadrant shows the profits of Boeing, and the upper-right number shows the profits of Airbus. Each firm must decide whether to produce a new type of aircraft. A Nash equilibrium occurs when each firm is making its best decision, given the action of the other. For this pattern of payoffs, there are two Nash equilibria, in the upper- right and lower-left quadrants, where one firm produces and the other does not. $0 $0 Nash Equilibrium The idea of a Nash equilibrium is that each firm must make its own best decision, taking as given each possible action of the rival firm. When each firm is acting that way, the outcome of the game is a Nash equilibrium. The action of each player is the best possible response to the action of the other player: 2 Nash equilibria - One in which Boeing produces and Airbus does not; and one in which Airbus produces and Boeing does not.
Transcribed Image Text:7) High-Technology Export Subsidies (part 3) "Strategic" Use of High-Tech Export Subsidies Payoff Matrix In Figure 10-9, we show a payoff matrix for Boeing and Airbus, each of which has to decide whether to produce the new aircraft. FIGURE 10-9 Produce Boeing Not produce Produce Airbus Not produce -$5 million -$5 million $100 million $100 million $0 $0 Feenstra/Taylor, International Trade, 5e Ⓒ Payoff Matrix Between Two Firms The lower-left number in each quadrant shows the profits of Boeing, and the upper-right number shows the profits of Airbus. Each firm must decide whether to produce a new type of aircraft. A Nash equilibrium occurs when each firm is making its best decision, given the action of the other. For this pattern of payoffs, there are two Nash equilibria, in the upper- right and lower-left quadrants, where one firm produces and the other does not. $0 $0 Nash Equilibrium The idea of a Nash equilibrium is that each firm must make its own best decision, taking as given each possible action of the rival firm. When each firm is acting that way, the outcome of the game is a Nash equilibrium. The action of each player is the best possible response to the action of the other player: 2 Nash equilibria - One in which Boeing produces and Airbus does not; and one in which Airbus produces and Boeing does not.
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