Consider again the case of the 2011 Citrus. Almost all cars depreciate over time, and so it is with.

Consider again the case of the 2011 Citrus. Almost all
cars depreciate over time, and so it is with the Citrus. Every month that
passes, all sellers of Citruses—regardless of type—are willing to accept $100
less than they were the month before. Also, with every passing month, buyers
are maximally willing to pay $400 less for an orange than they were the
previous month and $200 less for a lemon. Assume that the example in the text
takes place in month 0. Eighty percent of the Citruses are oranges, and this proportion
never changes.

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(a) Fill out three versions of the following table for
month 1, month 2, and month 3:

 

(b) Graph the willingness to accept of the sellers of
oranges over the next 12 months. On the same figure, graph the price that
buyers are willing to pay for a Citrus of unknown type (given that the
proportion of oranges is 0.8). (Hint: Make the vertical axis range from 10,000
to 14,000.)

(c) Is there a market for oranges in month 3? Why or why
not?

(d) In what month does the market for oranges collapse?

(e) If owners of lemons experienced no depreciation (that
is, they were never willing to accept anything less than $3,000), would this
affect the timing of the collapse of the market for oranges? Why or why not? In
what month does the market for oranges collapse in this case?

(f) If buyers experienced no depreciation for a lemon
(that is, they were always willing to pay up to $6,000 for a lemon), would this
affect the timing of the collapse of the market for oranges? Why or why not? In
what month does the market for oranges collapse in this case?

 

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