a) What is the dominant strategy for the United States? For Mexico?

Explain.

b) Define Nash equilibrium. What is the Nash equilibrium for trade

policy?

c) In 1993, the U.S. Congress ratified the North American Free

Trade Agreement, in which the United States and Mexico agreed

to reduce trade barriers simultaneously. Do the perceived

payoffs shown here justify this approach to trade policy? Explain.

d) Based on your understanding of the gains from trade (discussed

in Chapters 3 and 9), do you think that these payoffs actually

reflect a nation's welfare under the four possible outcomes?