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.
