Table 16-7 Consider Two Countries, Eudora and the Inhabit, That Are Engaged

Table 16-7
Consider two countries, Eudora and the Inhabit, that are engaged in an arms race. The question each country must face is whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The table shows the possible outcomes for each decision combination.

-Refer to Table 16-7. In reality these two countries may have a hard time keeping arms levels at the social optimal level due to which of the following reasons? (i) both countries have incentives to cheat on the agreement
(ii) they may have trouble agreeing on the level of allowable arms
(iii) they both want to increase their world power

A) (i) and (ii)
B) (ii) and (iii)
C) (i) and (iii)
D) (i) , (ii) and (iii)

Correct Answer:

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