2. Consider the used-car market for the 2017 Citrus described in class. Each owner of an orange Citrus values it at $12,500; she is willing to part with it for a price greater than or equal to $12,500. Similarly, each owner of a lemon Citrus values it at $3,000. 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 previous (i.e., in-class) example. (a) What price would buyers be willing to pay for a 2017 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=0.6? Explain. (c) What price would buyers be willing to pay if f= 0.2? (d) Will there be a market for oranges if f = 0.2? Explain. (e) What is the minimum value of f such that the market for oranges does not collapse?

2. Consider the used-car market for the 2017 Citrus described in class. Each owner of an orange Citrus values it at $12,500; she is willing to part with it for a price greater than or equal to $12,500. Similarly, each owner of a lemon Citrus values it at $3,000. 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 previous (i.e., in-class) example. (a) What price would buyers be willing to pay for a 2017 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=0.6? Explain. (c) What price would buyers be willing to pay if f= 0.2? (d) Will there be a market for oranges if f = 0.2? Explain. (e) What is the minimum value of f such that the market for oranges does not collapse?

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Frontiers Of Microeconomics

Section: Chapter Questions

Problem 4PA

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