> Akerlof examines how the quality of goods traded in a market can degrade in the presence of information asymmetry between buyers and sellers, which ultimately leaves goods that are found to be defective after purchase in the market, noted by the term 'lemon' in the title of the paper.
> Akerlof's theory of the "Market for Lemons" paper applies to markets with information asymmetry, focusing on the used car market. Information asymmetry within the market relates to the seller having more information about the quality of the car as opposed to the buyer, creating adverse selection.[1] Adverse selection is a phenomenon where, buyers result in buying lower quality goods due to sellers not willing to sell high quality goods at the lower prices buyers are willing to pay. This can lead to a market collapse due to the lower equilibrium price and quantity of goods traded in the market than a market with perfect information.
> Akerlof examines how the quality of goods traded in a market can degrade in the presence of information asymmetry between buyers and sellers, which ultimately leaves goods that are found to be defective after purchase in the market, noted by the term 'lemon' in the title of the paper.
> Akerlof's theory of the "Market for Lemons" paper applies to markets with information asymmetry, focusing on the used car market. Information asymmetry within the market relates to the seller having more information about the quality of the car as opposed to the buyer, creating adverse selection.[1] Adverse selection is a phenomenon where, buyers result in buying lower quality goods due to sellers not willing to sell high quality goods at the lower prices buyers are willing to pay. This can lead to a market collapse due to the lower equilibrium price and quantity of goods traded in the market than a market with perfect information.