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.
Mountain grown beans will ________ unless importers can _______

Question

Quizplus · Accepted Answer

Since buyers cannot distinguish between the two types of beans, mountain grown beans will disappear from the market unless importers can credibly signal the source of their beans to buyers. This can be done through labeling or certification programs that verify the source of the beans. Without this, buyers will not be willing to pay the higher price for mountain grown beans and importers will have no incentive to continue importing them.

Suppose That Two Types of Indistinguishable Coffee Beans Are Imported