Everyone can observe that this is a most important contribution to economics.
Undoubtedly, Akerlof is asserting that his paper has something to say regarding an amazingly wide range of fact in the real world. In the case of the labor market, he appears to be promising to elucidate a number of features of the real world. However in the case of business in underdeveloped countries, he is merely intended for giving structure to a statement that is often made regarding the real world. At this point, the insinuation appears to be that Akerlof's model will one way or another reformulate an empirical proposition which is usually believed to be true.
Akerlof then says that, although his theory has these very general applications, he will focus on the market for used cars: "The automobile market is used as a finger exercise to illustrate and develop these thoughts. It should be emphasized that this market is chosen for its concreteness and ease in understanding rather than for its importance or realism" (Akerlof, George, 1970)
On first reading, it is tempting to interpret "the automobile market" as the market in which real people buy and sell real cars, and to think that Akerlof is going to present some kind of case-study. One can see why he might focus on one particular market which is easy to understand, even if that market is not very important on the scale of the economy as a whole. ...Show more