Table 17-10
Each year the United States considers renewal of Most Favored Nation (MFN)trading status with Farland (a mythical nation).Historically,legislators have made threats of not renewing MFN status because of human rights abuses in Farland.The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland.The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S.firms and the United States may not renew MFN status with Farland.The table contains the dollar value of all trade-flow benefits to the United States and Farland.

-Refer to Table 17-10.Assume that trade negotiators meet to discuss trade policy between the United States and Farland.If neither party to the negotiation is able to trust the other party,then

Question

Table 17-10
Each year the United States considers renewal of Most Favored Nation (MFN)trading status with Farland (a mythical nation).Historically,legislators have made threats of not renewing MFN status because of human rights abuses in Farland.The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland.The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S.firms and the United States may not renew MFN status with Farland.The table contains the dollar value of all trade-flow benefits to the United States and Farland.
 
-Refer to Table 17-10.Assume that trade negotiators meet to discuss trade policy between the United States and Farland.If neither party to the negotiation is able to trust the other party,then

Quizplus · Accepted Answer

If neither party can trust the other, then each party should follow its dominant strategy, which is the strategy that gives the best outcome regardless of what the other party does. In this case, the dominant strategy for the US is to renew MFN status regardless of whether or not Farland imposes trade sanctions. The dominant strategy for Farland is to impose trade sanctions regardless of whether or not the US renews MFN status. Therefore, if both parties follow their dominant strategy, the outcome will be (C, D), which gives a total trade flow value of $5 billion, which is the highest possible outcome given the choices available.

Table 17-10 Each Year the United States Considers Renewal of Most Favored