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.

Question

Quizplus · Accepted Answer

As time goes on, the buyers will become more accustomed to the taste of coffee made from greenhouse-grown beans, which they will perceive as a good substitute for mountain-grown coffee. This will make them less willing to pay the high price for mountain-grown coffee. As a result, the reservation price for mountain-grown beans will fall, and fewer mountain-grown beans will be offered for sale because it will be less profitable to import them.

Suppose That Two Types of Indistinguishable Coffee Beans Are Imported