If, in a tariff game between two governments, both countries are on their tariff reaction functions, then each country __________ maximizing its welfare given the tariff of the other country. In this situation, there __________ incentive for each country to reduce its tariff unilaterally.
A) is; is an
B) is; is no
C) is not; is an
D) is not; is

Question

Quizplus · Accepted Answer

If both countries are on their tariff reaction functions, then each country is already maximizing their welfare given the tariff of the other country. In such a situation, there is no incentive for either country to reduce its tariff unilaterally as it will only result in lower welfare for that country. Therefore, option B is the correct answer, which states that both countries are maximizing their welfare and there is no incentive for each country to reduce its tariff unilaterally.

If, in a Tariff Game Between Two Governments, Both Countries