Economics for Business Economics for Business IIII

Day 12 – Some Macro Numbers and Day 12 – Some Macro Numbers and AnswersAnswers

Dr. Andrew L. H. ParkesDr. Andrew L. H. Parkes““A Macroeconomic Understanding for use in A Macroeconomic Understanding for use in

Business”Business”

卜安吉卜安吉

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U.S.A. Real GDP Growth U.S.A. Real GDP Growth RatesRates

2011 is estimated around 2%

2012 is estimated at 2.4%

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Nash equilibriumNash equilibrium

In game theory, In game theory, Nash equilibriumNash equilibrium is a solution concept of a game is a solution concept of a game involving two or more players, in involving two or more players, in which which each player is assumed to each player is assumed to know the equilibrium strategies of know the equilibrium strategies of the other playersthe other players, and no player has , and no player has anything to gain by changing only his anything to gain by changing only his own strategy unilaterally. own strategy unilaterally.

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Nash equilibriumNash equilibrium

If each player has chosen a strategy If each player has chosen a strategy and no player can benefit by and no player can benefit by changing his or her strategy while changing his or her strategy while the other players keep theirs the other players keep theirs unchanged, then the current set of unchanged, then the current set of strategy choices and the strategy choices and the corresponding payoffs constitute a corresponding payoffs constitute a Nash equilibrium.Nash equilibrium.

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The Prisoners’ DilemmaThe Prisoners’ Dilemma

A Nash equilibrium, also known as a non-cooperative equilibrium, is the result when each player in a game chooses the action that maximizes his or her payoff given the actions of other players, ignoring the effects of his or her action on the payoffs received by those other players.

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The Prisoners’ DilemmaThe Prisoners’ Dilemma

An action is a dominant strategy when it is a player’s best action regardless of the action taken by the other player. Depending on the payoffs, a player may or may not have a dominant strategy.

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Explain Strategic BehaviorExplain Strategic Behavior

That’s the question.That’s the question. Answer it.Answer it.

If you needed help on the exam, I If you needed help on the exam, I suggested you answer the three things: suggested you answer the three things: What is a game, dominant strategy, and What is a game, dominant strategy, and payoff.payoff.

Those three got you 4 points on the Those three got you 4 points on the exam. exam.

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Comparative AdvantageComparative Advantage

Sources … make sure to explain, Sources … make sure to explain, briefly!briefly!

3 of them – give HO Theory … etc.3 of them – give HO Theory … etc.

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Internalize the ExternalityInternalize the Externality

Altering the IncentivesAltering the Incentives