Suppose That Two Types of Indistinguishable Coffee Beans Are Imported

Question 103

Multiple Choice

Suppose that two types of indistinguishable coffee beans are imported to the U.S.: those grown in the mountains of South America and those grown in greenhouses in Canada.Mountain grown coffee produces a better tasting coffee,but buyers cannot distinguish the beans by sight or smell.Only the importers know the source of the beans.Buyers value mountain grown beans at $10 a pound and greenhouse grown beans at $3 a pound.Assume that 70% of imported beans are mountain grown,and 30% are greenhouse grown. As time goes on,the buyers' reservation price will and mountain grown beans will be offered for sale. A) rise;more B) fall;more C) rise;fewer D) fall;fewer

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Q 104

Suppose that two types of indistinguishable coffee beans are imported to the U.S.: those grown in the mountains of South America and those grown in greenhouses in Canada.Mountain grown coffee produces a better tasting coffee,but buyers cannot distinguish the beans by sight or smell.Only the importers know the source of the beans.Buyers value mountain grown beans at $10 a pound and greenhouse grown beans at $3 a pound.Assume that 70% of imported beans are mountain grown,and 30% are greenhouse grown. Mountain grown beans will ________ unless importers can _______ A) disappear from the market;trick buyers. B) dominate the market;increase imports from Canada. C) dominate the market;reduce the price of Canadian beans. D) disappear from the market;credibly signal their source.

Q 105

Suppose that two types of indistinguishable coffee beans are imported to the U.S.: those grown in the mountains of South America and those grown in greenhouses in Canada.Mountain grown coffee produces a better tasting coffee,but buyers cannot distinguish the beans by sight or smell.Only the importers know the source of the beans.Buyers value mountain grown beans at $10 a pound and greenhouse grown beans at $3 a pound.Assume that 70% of imported beans are mountain grown,and 30% are greenhouse grown. Suppose that no mountain-grown beans are imported because buyers are worried that they might end up with Canadian beans.To counteract this problem,bean importers allow buyers to taste a cup before purchasing their beans.As a result, A) Canadian beans will not sell at all. B) mountain grown beans will not sell at all. C) both kinds of beans will sell for the same price. D) mountain grown beans will sell for a higher price than Canadian beans.

Q 106

Suppose that two types of indistinguishable coffee beans are imported to the U.S.: those grown in the mountains of South America and those grown in greenhouses in Canada.Mountain grown coffee produces a better tasting coffee,but buyers cannot distinguish the beans by sight or smell.Only the importers know the source of the beans.Buyers value mountain grown beans at $10 a pound and greenhouse grown beans at $3 a pound.Assume that 70% of imported beans are mountain grown,and 30% are greenhouse grown. Suppose that no mountain-grown beans are imported because buyers are worried that they might end up with Canadian beans.Importers are considering two possible approaches to solve this problem: adding a label indicating country of origin to each bag or serving samples to customers prior to purchase.Which approach will solve the lemons problem in the coffee market? A) Either approach will solve the problem equally effectively. B) The tasting approach will be more effective because it is costly-to-fake. C) The label will be more effective because it is credible. D) Importers will need to use both approaches because neither alone will solve it.