Table 16-8
Consider two countries, Eudora and the Inhabit, that are engaged in an arms race.The question each country must face is whether to build new weapons or to disarm existing weapons.Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs.But each country also prefers to live in a world safe from the other country's weapons.The table shows the possible outcomes for each decision combination.
-Refer to Table 16-8.If both countries get together and agree on a certain level of arms, what will happen to social welfare, assuming that both countries keep their end of the bargain?
A)social welfare will remain unchanged due to game theory
B)social welfare will remain unchanged due to dominant gaming strategies
C)social welfare will increase
D)social welfare will decrease

Question

Table 16-8
Consider two countries, Eudora and the Inhabit, that are engaged in an arms race.The question each country must face is whether to build new weapons or to disarm existing weapons.Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs.But each country also prefers to live in a world safe from the other country's weapons.The table shows the possible outcomes for each decision combination. 
-Refer to Table 16-8.If both countries get together and agree on a certain level of arms, what will happen to social welfare, assuming that both countries keep their end of the bargain?
A)social welfare will remain unchanged due to game theory 
B)social welfare will remain unchanged due to dominant gaming strategies 
C)social welfare will increase 
D)social welfare will decrease

Quizplus · Accepted Answer

If both countries agree to disarm, the best outcome for both is for neither to cheat and to enjoy the safety of a world without weapons. This is the Nash equilibrium, where both countries choose the best strategy for themselves, given the other country's strategy. In this case, the best strategy is to disarm. This leads to an increase in social welfare as both countries will be safer and won't waste resources on building weapons.

Table 16-8 Consider Two Countries, Eudora and the Inhabit, That Are Engaged