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11-01-2002, 07:56 AM
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 | Exalted Member | | Join Date: May 2001 Location: Here
Posts: 10,553
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My question paper is due today and i still am not sure if i have this question figured out.  Quote:
3. Consider two countries that trade but do not have a trade agreement between them. Country A exports product X to B, and Country B exports product y to A. Country A levies a tariff equal to s on imports of Y, and country B levies a tariff equal to t on imports of X. The level of welfare for Country A is U; which depends both on both tariffs (so we write U(s,t) to describe how the welfare depends on the two tariffs). Similarly, the welfare of Country B is v: which also depends on both tariff levels (so we write V(s,t)).
Suppose the two countries set tariffs simultaneously. What would be the conditions for Nash equilibrium in tariffs? What is the essential feature of such equilibrium?
| Basically my answer is that looking at the assumptions and conditions of the Cournot model, the firms will come to a common tariff which is the Nash equilibrium. However i am not sure what conditons mean and what the essential feature is. The NE is basically where you decided on the best reply to the other firms possible quanitities. To make things short you come to the Cournot Eq. which is the Nash Eq as well. Is this correct? If that is the essential feature what are the conditions then?
I need to hand this paper in 3 hours. And this the only freaking question i havent answered. Spent 1 hour so far on it. I cant figure out what the conditions and main features are/is.
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