Question 2 Consider the Market of Lemon example we examined in class. Imagine that buyers of orange cars value these cars as much as $ 50k while they value lemon cars as much as $ 20k. An orange can be between $ 45k (the car's value for the owner) and $ 50k; for a lemon, anywhere between $ 18k (the car's value for the owner) and $ 20k. 1. 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? 2. Will there be a market for oranges if f-0.6? Explain. 3. What price would buyers be willing to pay if f were 0.2? 4. Will there be a market for oranges if f f-0.2? Explain.

Question 2 Consider the Market of Lemon example we examined in class. Imagine that buyers of orange cars value these cars as much as $ 50k while they value lemon cars as much as $ 20k. An orange can be between $ 45k (the car's value for the owner) and $ 50k; for a lemon, anywhere between $ 18k (the car's value for the owner) and $ 20k. 1. 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? 2. Will there be a market for oranges if f-0.6? Explain. 3. What price would buyers be willing to pay if f were 0.2? 4. Will there be a market for oranges if f f-0.2? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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