Consider the used-car market for the 2011 Citrus described in Section 4.B. There is now a surge in demand for used Citruses; buyers would now be willing to pay up to $18,000 for an orange and $8,000...


Consider the used-car market for the 2011 Citrus described in Section 4.B. There is now a surge in demand for used Citruses; buyers would now be willing to pay up to $18,000 for an orange and $8,000 for a lemon. All else remains identical to the example in Section 4.B.


(a) What price would buyers be willing to pay for a 2011 Citrus of unknown type if the fraction of oranges in the population, f, were 0.6?


(b) Will there be a market for oranges if f 5 0.6? Explain.


(c) What price would buyers be willing to pay if f were 0.2?


(d) Will there be a market for oranges if f 5 0.2? Explain.


(e) What is the minimum value of f such that the market for oranges does not collapse?


(f) Explain why the increase in the buyers’ willingness to pay changes the threshold value off , where the market for oranges collapses.




May 26, 2022
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