The Market For Lemons, By George Akerlof
The lemons problem refers to an issue regarding to asymmetric information possessed by the buyer and the seller of an product which produced to the market such as cars . The lemons problem was put forward in a 1970 research paper, "The Market for Lemons," written by George Akerlof, an economist and professor at the University of California, Berkeley. it is a corner stone of informational economics since then. The tag phrase identifying the problem came from the original example of used cars that Akerlof used to explain the concept of asymmetric information, as old used cars are commonly referred to as "lemons."
The lemons problem is recognized as existing in the market place for both consumer services and business products, and also in the …show more content…
The Asymmetric information description in which the sellers in the market hide the information and details about quality of the car. At the time of purchase the buyer is unsure what type of car he is buying . This lack of information about the quality of the car is what is called a symmetric information because both sides ( buyers and sellers ) have unequal information about the product.
The problem of asymmetrical information arises because buyers and sellers don't have equal amounts of information required to make an informed decision regarding a transaction. The seller or holder of a product or service usually knows its true value, or at least knows whether it is above or below average in quality. A potential buyer, however, typically does not have this knowledge, since he does not have idea or access to all the information the seller have.
Akerlof's original example of the purchase of a used car noted that the potential buyer of a used car cannot easily assure the true value of the vehicle. Therefore, he will pay an average price only and will not be happy to pay …show more content…
But also the lemons problem creates a disadvantage for the seller of a premium vehicle, since the potential asymmetric information, and the resulting fear of getting stuck with a lemon, means that he is not willing to offer a premium price even though the vehicle is of high value in the market and competing with other major brands. This means that the seller of the product or good is suffering from not abling to buy it for high or reasonable price .
3- Transaction cost analysis is about the comparable costs of planning, adapting, and organyzing task accomplishment under certain governance structures"
This analysis supposes that human employees are subject to bounded rationality and that some of them are given to opportunism. But for bounded rationality, all economic exchange could be efficiently organized by contract. And people can also be dishonest in economic transactions. This means that while organizational person is less competent than economic person, he is motivationally more complex".
In a perfect market opportunism can be avoided and pushed over time, but not when there are small
The lemons problem is recognized as existing in the market place for both consumer services and business products, and also in the …show more content…
The Asymmetric information description in which the sellers in the market hide the information and details about quality of the car. At the time of purchase the buyer is unsure what type of car he is buying . This lack of information about the quality of the car is what is called a symmetric information because both sides ( buyers and sellers ) have unequal information about the product.
The problem of asymmetrical information arises because buyers and sellers don't have equal amounts of information required to make an informed decision regarding a transaction. The seller or holder of a product or service usually knows its true value, or at least knows whether it is above or below average in quality. A potential buyer, however, typically does not have this knowledge, since he does not have idea or access to all the information the seller have.
Akerlof's original example of the purchase of a used car noted that the potential buyer of a used car cannot easily assure the true value of the vehicle. Therefore, he will pay an average price only and will not be happy to pay …show more content…
But also the lemons problem creates a disadvantage for the seller of a premium vehicle, since the potential asymmetric information, and the resulting fear of getting stuck with a lemon, means that he is not willing to offer a premium price even though the vehicle is of high value in the market and competing with other major brands. This means that the seller of the product or good is suffering from not abling to buy it for high or reasonable price .
3- Transaction cost analysis is about the comparable costs of planning, adapting, and organyzing task accomplishment under certain governance structures"
This analysis supposes that human employees are subject to bounded rationality and that some of them are given to opportunism. But for bounded rationality, all economic exchange could be efficiently organized by contract. And people can also be dishonest in economic transactions. This means that while organizational person is less competent than economic person, he is motivationally more complex".
In a perfect market opportunism can be avoided and pushed over time, but not when there are small