A Game-Theory Explanation of the Paradox That Even Though All

question 36

Multiple Choice

A game-theory explanation of the paradox that even though all countries would benefit if each chose free trade, in fact each tends to follow protectionist policies is

• A) trade war.
• B) collective action.
• C) prisoner's dilemma.
• D) benefit-cost analysis.
• E) rent seeking.

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Definitions:

Consumer Surplus

Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service and the total amount they actually pay.

Equilibrium

A state in a market where the quantity of goods supplied is equal to the quantity of goods demanded, with no pressure to change the price or quantity.

Price Ceiling

A government-imposed limit on how high a price can be charged for a product or service, often set below the equilibrium price to keep goods affordable.

Consumer Surplus

The disparity between what consumers are ready and able to spend for a product or service and the amount they end up paying.