Quality Uncertainty and the Market for Lemons

1 year ago
Microeconomics

Asymmetric information – Situation in which a buyer and a seller possess different information about a transaction.

 

The lemons problem: With asymmetric information, low-quality goods can drive high-quality goods out of the market.

 

Adverse selection – Form of market failure resulting when products of different qualities are sold at a single price because of asymmetric information, so that too much of the low-quality product and too little of the high-quality product are sold.

Bijay Satyal
Dec 1, 2021
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