Lemon Market
For example, in the used car market, sellers have detailed knowledge of a car's past breakdown history and current problems, but buyers do not have accurate information about them. As a result of this information asymmetry, buyers treat every car as if it were a defective commodity.
nishio.icon Briefly describe the lemon market.
gpt.icon Lemon Market is an economics concept in which market efficiency is impaired due to information asymmetry. The term was proposed by George Akerlof in his 1970 paper "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," using the example of transactions in the used car market in particular.
In a lemon market, sellers have more information about their goods than buyers do. For example, in the used car market, sellers know more about a car's past breakdown history and current problems, while buyers do not have accurate information about them. As a result of this information asymmetry, buyers treat all cars as if they are of average quality, or "lemons" (defective goods). Thereby, sellers of good quality cars may not get the right price and may withdraw from the market. Ultimately, overall market quality declines and efficient transactions are hindered.
The Market for Lemons - Wikipedia
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