Answer Happy

The Australian government has to decide whether to meet the international target for CO2 emissions. Australia's trade partner, environmentally-friendly New Zealand, has to subsequently decide whether to impose trade sanctions on Australia in reaction to Australia's decision. The decision tree below shows the options and the payoffs in billions of dollars of trade (negative sign indicates a loss). Australia chooses... Meet target Ignore target New Zealand chooses. New Zealand chooses... Impose sanctions Not impose sanctions Impose sanctions Not impose sanctions Aust -$10 NZ-$5 Aust-$4 NZ $2 Aust-$5 NZ-57 Aust SO NZ-51 Assuming the governments of both countries are rational and self-interested, what is the likely outcome? a. Australia will choose to invade New Zealand and New Zealand launch a 'sheep attack'. b. The outcome is indeterminate because there is more than one Nash equilibrium. OC. Australia will choose to ignore the target and New Zealand will impose sanctions. Od. Australia will choose to meet the target and New Zealand will impose sanctions. Oe. Australia will choose to meet the target and New Zealand will not impose sanctions. O f. Australia will choose to ignore the target and New Zealand will not impose sanctions.