Question

Explain the concept of game theory in relation to comparative advantage

Answer 1

Comparative advantage states that even when one state is better at making all products, both sides still benefit from trade. When we consider game thery in relation to the comparative advantage, we can see that the main rationale for free trade has been the notion that free trade is always and everywhere a win win roposition for the trading countries involved. the argument has been that een if one trade country is protectionist or mercantalist, the other country is still better off sticking with free trade.

Game theory, whose objective is the analysis of relationships among two or more actors, can assist international relations in explaining the interactions among the actors they represent. Many academicians have debated regarding the role of the game theory in the international trade which began since the publication of "the theory of Games and Economic behaviour" by von Neumann and Mongenstern.

Game theory has been used to argue the need for liberalisation, elimination or reduction of customs duties and tariffs and protectionism still practiced by some countries. International trade and more specifically, the decision of the country specialization can also be considered as a strategic game.