What is lemons problem in economics?


This refers to a form of adverse selection wherein there is a degradation in the quality of products sold in the marketplace due to asymmetry in the amount of information available to buyers and sellers. Since sellers typically know more about any defects in the products that they sell to buyers, there is an opportunity for the sellers in the marketplace to sell low-quality products to unaware buyers. The idea was first proposed by American economist George Akerlof in his popular 1970 paper, “The market for lemons: Quality uncertainty and the market mechanism”.

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Printable version | Jun 17, 2021 1:22:06 AM |

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