Nash Equilibrium as a Predicted Long-Run Outcome
A Nash equilibrium is used to predict the long-term outcome of an economic model because it represents a stable state. In any situation that is not a Nash equilibrium, at least one individual has an incentive to change their strategy to achieve a better result. Such changes alter the overall outcome, meaning the situation is unstable and not expected to persist. Only when a Nash equilibrium is reached, where no one can benefit from unilaterally changing their actions, does the outcome become stable and predictable over the long run.
0
1
Tags
Economics
Economy
Introduction to Macroeconomics Course
Ch.1 The supply side of the macroeconomy: Unemployment and real wages - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Related
In a labor market model where one relationship describes the real wage required to motivate workers at each level of employment, and another describes the real wage firms pay based on their pricing decisions, what is the expected outcome if the wage required by workers is currently higher than the wage paid by firms?
Stability of Labor Market Equilibrium
Consider an economy's labor market where firms set prices as a markup over their labor costs, and the effort level of workers is dependent on the real wage they receive. If this market is in a supply-side equilibrium, which of the following statements most accurately describes the situation?
Evaluating a Labor Market Policy Proposal
Nash Equilibrium as a Predicted Long-Run Outcome
Incentives of Firms and Workers at the WS-PS Equilibrium
Why Firms Reject Low-Wage Offers at Equilibrium
The WS-PS Equilibrium as a Long-Run Average
Equilibrium in the Wage-Setting and Price-Setting Model
Distribution of Output per Worker at Supply-Side Equilibrium
Compatibility of Claims on Output at Supply-Side Equilibrium
Learn After
Two competing coffee shops, 'Bean Haven' and 'The Daily Grind', are located across the street from each other. They must independently decide whether to set a 'High Price' or a 'Low Price' for their standard coffee. The daily profits for each shop based on their decisions are shown below:
- If both set a High Price, each earns $200.
- If both set a Low Price, each earns $120.
- If one sets a High Price and the other sets a Low Price, the Low Price shop earns $250 and the High Price shop earns $50.
Assuming both shops are currently setting a High Price, which of the following describes the most likely long-run outcome, and why?
Stability of Market Outcomes
Strategic Advertising and Market Stability
Consider a market with two competing firms. Initially, both firms are in a situation where either one could increase its own profit by unilaterally changing its business strategy (e.g., changing its price). This initial situation is not stable. Arrange the following steps in the logical sequence that describes how this market will likely evolve to a stable, long-run outcome.
The Logic of Stable Economic Outcomes