MQ Expresso
How did a “lemon" is being used as an economic theory
MQTrader Jesse
Publish date: Fri, 10 Jun 2022, 05:06 PM
The Market for Lemons
In American slang, a lemon means a car that is found to be defective after it has been bought. The Market for Lemon also means the market for the defective product.
Why does the market for lemons occur in our daily life? An American economist George Akeriof explained this situation. In a market, buyers and sellers always face information asymmetry issues. The seller usually holds more information regarding the quality of the product. In the view of buyers, they can only protect themself by price bargaining with a lower price.
Through the table, we know that buyers and sellers will only select the option which can maximize their self-interest. Usually, the cost is too high to differentiate which product is a faultless product and which product is defective, therefore the buyer will choose a convenient and low-cost way to bargain with the final price. If the overall client is only willing to pay a low price for the product, the seller who provided a high-quality product will leave the market as they cannot afford the high cost to maintain their business. In the end, the market will only be left with defective quality products.
“The market for Lemons” is a common situation in our daily life which includes the stock market, the second-hand market, employment issues, bad money drive goods, etc.
Now, how can we avoid this situation occurring in our daily life? Leave a comment and share your idea with us!
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