There is a product (C)Coffee. The Coffee can have good qualty (H) or bad qualitt (L). The smallest amount buyers will buy for wholesale coffee of a good quality unit is $500 and the maxiumum they will pay is $600. The smallest amount they will pay for bad quality is $0 and the maxiumum is $0. x) what price of coffee would it be traded at?( with buyers knowing the quality)
There is a product (C)Coffee. The Coffee can have good qualty (H) or bad qualitt (L). The smallest amount buyers will buy for wholesale coffee of a good quality unit is $500 and the maxiumum they will pay is $600. The smallest amount they will pay for bad quality is $0 and the maxiumum is $0.
x) what
The choice of having good that is bad quality (L) is not in the demand of the buyers because they are not willing to pay anything for this product.
Thus, the buyers are left with only one product that is of good quality ( H).
The demand curve for good quality coffee is given by the figure below:
The smallest amount that buyers will buy is at $500. Thus that amount is unit 1 or quantity 1.
The maximum the buyers want to pay for the same amount is $600, as shown in the figure.
Step by step
Solved in 3 steps with 1 images
