Subjects

Tariff game theory shows that when two nations each impose tariffs to protect domestic industries, they lock into a Nash equilibrium that harms both economies. Repeated interaction and tit-for-tat retaliation is the only mechanism that makes cooperation the rational, stable outcome.

The fiscal multiplier effect is the ratio of total GDP change to an initial government spending injection. Theory predicts a 2.5x return when the marginal propensity to consume is 0.6, but tax drag, import leakage, and inflation routinely push real-world multipliers below 1.0.

A two-part tariff splits payment into a fixed access fee and a low per-unit price. The fixed fee captures consumer surplus up front; the low unit price removes friction and drives volume. The 2018 International Economics Olympiad used a Moscow restaurant to show this mechanism in action.

Negative positional externalities occur when one person’s visible upgrade—a luxury car, a renovated driveway—mathematically lowers a neighbour’s relative social standing without any money changing hands. Game theory shows this triggers a mutual arms race that wipes out both players’ savings while leaving their relative status exactly where it started.