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IECO1100 ASSESSMENT 1 Game Theory Assignment (20%) 30 marks

Context and Assessment Task

To be Submitted through TURNITIN by 11:59pm ( mid night) Sunday 6^th Aug

You must include in -text referencing and a reference list

Please number and answer EACH QUESTION SEPARATELY.

Game theory is a useful analytic tool to study strategic interactions, e.g. see https://theconversation.com/john-nash-and-his-contribution-to-game-theory-and-economics-42355

This game theory assignment relates to the trade war between the United States and China. These 2 countries are faced with 2 decisions/ strategies each – to cooperate or to continue the trade dispute. The payoffs for each country depend on their combined decisions.  Below is a short summary of the trade war.

The trade war between China and the United States has been an ongoing conflict with significant implications for each country and for global trade.

It started in early 2018 with Donald Trump (then president of the United States) being a key proponent. Concern was expressed about China’s trade practices including allegations of intellectual property theft, technology transfer and unfair trade practices. The US as a result imposed restrictions on Chinese trade and China retaliated by imposing its own restrictions on the United States. This has led to a full scale tit-for-tat escalation in the trade war. and has involved imposition of trade restrictions such as tariffs on goods and services between the two countries.

The trade war has had a significant impact on bilateral trade between the two countries – affecting exports, supply chains, impacting negatively on specific industries. But has also had a large impact on the global economy overall.

Part (A) 26 marks

1. Provide an overview of the trade war between the United States and China. Include information about the reasons why the trade dispute started and what economic measures were taken by each country against the other.  (4 marks)

2. Describe the IMPACT of these countries’ decisions on their respective economies. Provide some real examples of these countries’ decisions and their impacts on their own economies. (3 marks)

3. Describe the IMPACT of these countries’ actions on global trade. Give some real examples of these impacts. (2 marks)

4. Explain if there were any attempts between both countries to negotiate/ cooperate? Were they successful? (2 marks)

5. What would be the benefits to each country and global trade overall if both countries cooperated? (2 marks)

6. Complete the table below (2 marks)

TABLE 1

7. Differentiate between “self regarding” and “other regarding” preferences? Use China and the United States as examples here. (1 mark)

TABLE 2

SELF REGARDING PREFERENCES

8. From the above table -Given this is a simultaneously played game, explain what CHINA’S best strategy is (given the UNITED STATES’ possible actions) and what the UNITED STATES’ best strategy is (given CHINA’S possible actions). (4 marks)

9. Does a DOMINANT STRATEGY exist for both countries? Explain. (2 marks)

10. Explain if a dominant strategy equilibrium results and whether this results in an OPTIMAL OUTCOME. Conclude and explain whether this game is an invisible hand outcome or a prisoner’s dilemma outcome and why. (3 marks)

11. Is this outcome Pareto efficient? Explain (1 mark)

Part (b) 4 marks

12. Explain what is meant by EQUITY (fairness) AND EFFICIENCY? Is COOPERATION between both countries likely to be aiming to achieve these? Discuss. (2 marks)

13. Describe some ways to give incentives or put pressure on both countries to achieve the optimal outcome? (2 marks)

Submit through Turnitin in Moodle