Games of strategy 4th edition. ch 8

U2. 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

Citrusesregardless of typeare 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.

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

and month 3:

Willingness to accept of sellers .|. Willingness to pay of buyers

Orange

Lemon

(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?