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Consider the used-car market for the Ford Pinto described in class. There is now a surge...

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Economics

Consider the used-car market for the Ford Pinto described inclass. There is now a surge in demand for used Pintos; buyers wouldnow be willing to pay up to $17,000 for a peach and $7,000 for alemon. All else remains identical to the example seen in class.

a. What price would buyers be willingto pay for a Pinto of unknown type if the fraction of peaches inthe population, f, were 0.75?

b. Will there be a market for peachesif f=0.75? Explain.

c. What price would buyers be willingto pay if f were 0.5?

d. Will there be a market for peachesif f=0.5? Explain.

e. What is the minimum value of f suchthat the market for peaches does not collapse?

f. Explain why the increase in thebuyers’ willingness to pay changes the threshold value of f, wherethe market for peaches collapse.

Answer & Explanation Solved by verified expert
4.4 Ratings (760 Votes)
A The answer lies in the expected    See Answer
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