Suppose That Two Types of Indistinguishable Coffee Beans Are Imported

question 30

Multiple Choice

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.
Suppose that no mountain-grown beans are imported because buyers are worried that they might end up with Canadian beans.Importers are considering two possible approaches to solve this problem: adding a label indicating country of origin to each bag or serving samples to customers prior to purchase.Which approach will solve the lemons problem in the coffee market?

• A)Either approach will solve the problem equally effectively.
• B)The tasting approach will be more effective because it is costly-to-fake.
• C)The label will be more effective because it is credible.
• D)Importers will need to use both approaches because neither alone will solve it.

---

Definitions:

Groupthink

A phenomenon that occurs within a group of people, where the desire for harmony or conformity results in an irrational or dysfunctional decision-making outcome.

Organizational Politics

The use of power and social networking within an organization to achieve changes that benefit the individual or the organization.

Larger Organizations

Entities consisting of many individuals and structures, typically characterized by complex hierarchies and processes, capable of influencing or directing extensive resources towards their objectives.

Staff Positions

Roles within an organization dedicated to providing advice and support services to line positions, rather than being directly involved in the core operations.