The document discusses George Akerlof's "lemon's problem" theory regarding asymmetric information in markets. The theory explains that when buyers have less information than sellers about product quality, sellers can pass off poor quality "lemons" as good products without lowering the price. This causes buyers to be unwilling to pay a premium price, driving high-quality goods out of the market. The document also notes that the lemons principle shows how bad products or money can displace good ones due to a lack of transparent information in exchanges.
The document discusses George Akerlof's "lemon's problem" theory regarding asymmetric information in markets. The theory explains that when buyers have less information than sellers about product quality, sellers can pass off poor quality "lemons" as good products without lowering the price. This causes buyers to be unwilling to pay a premium price, driving high-quality goods out of the market. The document also notes that the lemons principle shows how bad products or money can displace good ones due to a lack of transparent information in exchanges.
The document discusses George Akerlof's "lemon's problem" theory regarding asymmetric information in markets. The theory explains that when buyers have less information than sellers about product quality, sellers can pass off poor quality "lemons" as good products without lowering the price. This causes buyers to be unwilling to pay a premium price, driving high-quality goods out of the market. The document also notes that the lemons principle shows how bad products or money can displace good ones due to a lack of transparent information in exchanges.
The paper as a whole relates quality and uncertainty.
The existence of goods
with many factors and substitute poses interesting problems for the theory of markets. An interaction between quality differences and uncertainty explains and reflects a lot about the labor market. Lemons problem theory has the same realization about the information between quality and uncertainty. As what the author disclose he was extraordinary happy to have been able to write this theory cause it gives some basic method of economics that emphasize some aspects of reality. Lemons problem theory deals a lot with a problem as old as markets themselves. It concerns how old cars traders respond to the natural question: “if he wants to sell that used car, do I really want to buy it?” Such questioning is fundamental to the market of used cars, but it is also at least minimally present in every market transaction. In this paper, Akerlof asserted that car buyers possess different information than car sellers, giving the sellers an incentive to sell goods of poor quality without lowering the price to compensate for the inferiority. Akerlof uses the colloquial term lemons to refer to bad cars. He argues that buyers often do not have the information to distinguish a lemon from a good car. Thus, sellers of good cars cannot get better-than-average market prices for their products. The theory argues that low-quality and high-quality products can command the same price, given a lack of information on the buyer's side. The mere presence of inferior goods destroys the market for quality goods when information is not fair and imperfect. Reason why asymmetric information theory was true that sellers may possess more information than buyers, skewing the price of goods sold. Buyers cannot tell which cars are lemons, but, of course, sellers know. Therefore, a buyer knows that there is some probability that the car he buys will be a lemon and is willing to pay less than he would pay if he were certain that he was buying a high-quality car. Basically, the "lemon principle" is that bad cars chase good ones out of the market and bad money drives out good money through mechanism of exchange rates. Lemon principle explain a lot about how legit information and the information itself about a certain things or a certain works is needed in order to have equal outcome between the buyer and the seller's
"Firms in A Perfectly Competitive Markets Do Not Have The Liberty To Put Their Own Prices or Charge Higher" Because There Are A Large Number of Buyers and Sellers of The Commodity Under