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# Name ___________________________________ Section __________________________________ ECO 3101 Midterm Exam 1, Spring 2008 Professor Sarah Hamersma...

I need an explanation for number 2 i had the answer but i don't understand how go to get there
4. The “Prisoner’s Dilemma” is a. a sequential game in which the Nash equilibrium arises from dominant strategies b. a simultaneous game that has multiple Nash equilibria c. a sequential game that has multiple Nash equilibria d. a simultaneous game in which the Nash equilibrium arises from dominant strategies 5. If the price of freshwater fish increases due to a shortage of clean lakes, how would this affect the market demand for freshwater fish? a. It would cause the market demand to shift to the left. b. It would cause the market demand to shift to the right. c. It would cause a movement along the demand curve to the left. d. It would cause a movement along the demand curve to the right. Quantitative Problems (47 points): 1. (10 points) You have two equations that represent the supply and demand for homemade greeting cards: Q = 3.5 – 1/10 P Q = 2 + 1/5 P a. Which of these is the demand curve? (2 points) Q = 3.5 – 1/10 P b. What is the equilibrium price and quantity of greeting cards in this market? (3 points) 3.5 - (1/10)P = 2 + (1/5)P 1.5 = (3/10)P 15 = 3P P = 5 Plug in: Q = 2 + (1/5)*5 = 3 (2 points out of 3 if you got P or Q but not both) c. What is the price elasticity of demand at this equilibrium point? Is demand elastic or inelastic at this point? Need to solve D curve for P first. Then slope is -10. Formula is e = (1/slope) * (P/Q) e = 1/(-10) * (5/3) = -5/30 = -1/6 or -.166 (3 pts) Demand is inelastic at this point. (2 pts) 2
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