The Market for Lemons by George A Akerlof - Essay Example

Unlike sometimes back when economic models were tailored to particular situations and specific markets, nowadays economic models are customized to illustrate outstanding features of reality describing special problems under discussion. Even though many economists claimed that major economic problems were solved, unemployment by money wages was hard to solve.

The economists were unable to identify the cause of economic growth. Growth theory led to a new model to help address the question. It was able to deal with goods and capital; that varied continuously in quality. In addition, the theory helped in discovering asymmetric information. Growth in education was able to explain growth residual hence accounting for increases in both labor force and capital. However, the asymmetric information needed further exploration before it is documented. With the help of the automobile market, Akerlof was able to discover that information asymmetry played a key role in business cycles. It is a major issue in those markets that the quality of goods is hard to see without casual inspection. With the help of mathematics, he proved that asymmetric information could lead to the collapse of the used car market at the expense of new ones. Read More