Question: 1. a. How is a customs union different from a free-trade area? Provide examples of each.
b. Why do some economists prefer multilateral trade agreements over regional trade agreements?
2. Figure shows the tariff game among large countries.
a. Redraw the payoff matrix for a game between a large and small country.
b. What is/are the Nash equilibrium/equilibria, assuming that the large country applies an optimal tariff?
c. What does your answer to (b) tell you about the role of the WTO in a situation like this?
