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Unformatted text preview: The market of lemons can be witnessed almost in any economic market. More specifically, asymmetric information between sellers and buyers exists where one party holds more information than the other. The information problem can either cause an entire market to collapse or contract it into an adverse selection of low-quality products. This knowledge allows that party to find strategies to favor their personal endeavors. Some examples that stream from this idea are startup companies, insurance buyers, manufacturers, stock market, etc. According to the article, The Real Reason for Lemon Laws, the market of health insurance is an excellent example of the market of lemons. There exists substantial information asymmetry between the health insurer and the customer. The customer has a clear advantage for gauging his/her own personal health. In response to this informational disadvantage, insurers have begun to increase the premium rates in order to account for the increased chance of insuring...
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This note was uploaded on 04/06/2009 for the course ECON 2040 taught by Professor Easley/kleinberg during the Spring '07 term at Cornell University (Engineering School).
- Spring '07