Chapter 12, Problem 1RQ

To determine

The common elements of the economic games.

Explanation of Solution

When there are many players in the market, each one will be different from one another. The payoffs as well as the costs of production between different producers will be different. Thus, the strategies played in the economy by each firm would be different. This leads to the economic games between the firms where each firm would try to maximize their sales and profits due to the strategy of the competitors. Each economic game will have three common elements; they are as follows:

a. There will be different players in the economy. The presence of the different players or the firms in the economy creates the economic game. Without the competitors, there will be no game because there will be a unique strategy and no competition to the strategy.

b. There will be different strategies in the market for each player. This difference in the strategy occurs because of the fact that each one is not fully aware of the competitor's strategy.

c. There will be different payoffs for each firm. The difference in the economic strategies of the different players leads to the difference in the outcomes for each, which leads to different outcomes for different players in the market.

Economics Concept Introduction

Game theory: Game theory is the study of how people make decisions in situations in which attaining their goals depends on their interactions with others.