What is backward induction? What will be an ideal ...

[stephzh]

What is backward induction?
 
  What will be an ideal response?

Question 2

The above figure shows the U.S. market for 1 carat diamonds. Area B + area D is the
 
  A) decrease in consumer surplus due to the import quota.
  B) importers' profit from the quota.
  C) gain in total surplus due to the import quota.
  D) deadweight loss from the import quota.
  E) increase in producer surplus due to the import quota.

[kthug]

Answer to Question 1

Backward induction is the procedure of solving an extensive-form game by first considering the last mover's decision in order to deduce the decisions of all previous movers.

Answer to Question 2

D