The Market for Lemons - Essay Example

George A. Akerlof’s article on “The Market for Lemons” describes or rather discusses what occurs in situations where sellers have deep knowledge about certain products, compared to the buyers. He, moreover, uses the word lemon to describe an automobile market that is troubled.
Akerlof (2003) uses the assumption that the automobile market is made up of four different categories: the used ones, new ones, those in good condition, and the lemons. The lemon problem takes place in a market where those people with a potentially sufficient stock expect good profits and minimum risks. In such cases, a buyer will be willing to purchase or rather pay an average price for any quality stock. At this point, he brings in the idea of a high and low-quality company. For a high-quality company, the executives will not be willing to sell anything at an average price; whether stock or shares. However, for the companies that agree to sell at an average price, they are deemed to be of low quality since it will destroy the quality of the stock market. Read More