In 1993, the U.S. Congress ratified the North American Free Trade Agreement, in which the United States and Mexico agreed to reduce trade barriers simultaneously. True or False: Given the trade strategy decisions in the table, the United States is better off and Mexico is worse off with this new trade policy. True False Based on your understanding of the gains from trade (discussed in Chapters 3 and 9), which of the following statements accurately characterize how well the payoffs indicated for the four possible outcomes actually reflect a nation's welfare? Check all that apply. The payoffs in the upper right and lower left corners of the matrix reflect a nation's welfare because the nation with lower tariffs is better off, since that nation is more open to trade. The payoffs in the upper left and lower right corners of the matrix reflect a nation's welfare because they show that trade is beneficial and tariffs are a barrier to trade. The payoffs in the upper right and lower left corners of the matrix do not reflect a nation's welfare because tariffs hurt overall total surplus, so both countries' welfare should decline regardless of who charges the high and low tariffs.

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In 1993, the U.S. Congress ratified the North American Free Trade Agreement, in which the United States and Mexico agreed to reduce trade barriers
simultaneously.
True or False: Given the trade strategy decisions in the table, the United States is better off and Mexico is worse off with this new trade policy.
True
False
Based on your understanding of the gains from trade (discussed in Chapters 3 and 9), which of the following statements accurately characterize how
well the payoffs indicated for the four possible outcomes actually reflect a nation's welfare? Check all that apply.
The payoffs in the upper right and lower left corners of the matrix reflect a nation's welfare because the nation with lower tariffs is better
off, since that nation is more open to trade.
The payoffs in the upper left and lower right corners of the matrix reflect a nation's welfare because they show that trade is beneficial
and tariffs are a barrier to trade.
The payoffs in the upper right and lower left corners of the matrix do not reflect a nation's welfare because tariffs hurt overall total
surplus, so both countries' welfare should decline regardless of who charges the high and low tariffs.
Transcribed Image Text:In 1993, the U.S. Congress ratified the North American Free Trade Agreement, in which the United States and Mexico agreed to reduce trade barriers simultaneously. True or False: Given the trade strategy decisions in the table, the United States is better off and Mexico is worse off with this new trade policy. True False Based on your understanding of the gains from trade (discussed in Chapters 3 and 9), which of the following statements accurately characterize how well the payoffs indicated for the four possible outcomes actually reflect a nation's welfare? Check all that apply. The payoffs in the upper right and lower left corners of the matrix reflect a nation's welfare because the nation with lower tariffs is better off, since that nation is more open to trade. The payoffs in the upper left and lower right corners of the matrix reflect a nation's welfare because they show that trade is beneficial and tariffs are a barrier to trade. The payoffs in the upper right and lower left corners of the matrix do not reflect a nation's welfare because tariffs hurt overall total surplus, so both countries' welfare should decline regardless of who charges the high and low tariffs.
Consider trade relations between the United States and Mexico. Assume that the leaders of the two countries believe the payoffs to alternative trade
policies are shown in the following payoff matrix:
Mexico's Decision
Low Tariffs
High Tariffs
True
United States' Decision
False
Low Tariffs
$20 billion, $20 billion
$22 billion, $15 billion
The dominant strategy for the United States is to always choose tariffs. The dominant strategy for Mexico is to always choose
High Tariffs
$15 billion, $22 billion
$18 billion, $18 billion
True or False: The Nash equilibrium outcome for trade policy is for both the United States and Mexico to have high tarriffs.
tariffs.
Transcribed Image Text:Consider trade relations between the United States and Mexico. Assume that the leaders of the two countries believe the payoffs to alternative trade policies are shown in the following payoff matrix: Mexico's Decision Low Tariffs High Tariffs True United States' Decision False Low Tariffs $20 billion, $20 billion $22 billion, $15 billion The dominant strategy for the United States is to always choose tariffs. The dominant strategy for Mexico is to always choose High Tariffs $15 billion, $22 billion $18 billion, $18 billion True or False: The Nash equilibrium outcome for trade policy is for both the United States and Mexico to have high tarriffs. tariffs.
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