A Small Quiz on Trade Wars
(last update: May 12, 1999)

Seattle
meeting
WTO
workshop
Asian
crisis
Trivia
References
A
quiz
US
trade
Conferences
Kar-yiu's
home page
UW-seal-sm.gif (2289 bytes)

White_CirclesD1C1.gif (973 bytes)

Section A: True, False, or Uncertain?

  1. When two economies are in a trade war using optimal tariffs, a Nash equilibrium must involve some trade.
  2. When two economies are in a trade war using optimal quotas, the Nash equilibrium must involve some trade.
  3. When two economies are in a trade war, with one country using an optimal tariff while the other country using an optimal quota, the Nash equilibrium must involve some trade.
  4. A trade war is usually compared with prisoners' dilemma in the sense that both countries will be worse off in a trade war than under free trade.
  5. In a trade war between two countries, the smaller country must lose.
  6. In a trade war between two countries, the larger country must lose.
  7. In a trade war between two identical countries, both must lose.
  8. Starting from a Nash equilibrium in a trade war with tariffs only, a simultaneous reduction in the tariff rates by the same percentage by all countries will benefit all countries.
  9. Starting from a Nash equilibrium in a trade war with quotas only, a simultaneous doubling of the quotas by all countries will benefit all countries.

Section B: Explain the following statements.

  1. Consider a Johnson framework with two governments choosing their optimal tariffs on competitive industries. Argue that if both offer curves are concave and continuous, a Nash equilibrium with some trade always exists.
  2. Consider a Johnson framework with two governments choosing their optimal tariffs on competitive industries. Show that if the foreign offer curver is not concave downward (toward its import axis), then the home country's tariff reaction curve may not be continuous and a Nash equilibrium with trade may not exist.
  3. In a trade war with tariffs, specific tariffs are not equivalent to ad valorem tariffs. Explain.

This page is not finished yet. Answers will be posted later. If you have interesting questions you want to add to the above list, please send them and their answers to me by e-mail or mail.


E.GIF (434 bytes) Comments are most welcome. Please write: karyiu@u.washington.edu
back.GIF (207 bytes) Back to Kar-yiu's main page or WTO main page.