412- An Analysis of George Akerlof’s

412- An Analysis of George Akerlof’s - An...

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An Analysis of George Akerlof’s “The Market for Lemons’’ Introduction The primary research question approached in this paper is about quality uncertainty and its relationship with the traditional theory of markets. Additionally, he offers comments on the structure of money markets, the notion of “uninsurablity”, and even provides a structure on the cost of dishonesty. The result of this paper was the revelation that in this market there is an incentive to sell merchandise of poor quality. Since the detrimental effects of this choice affect the overall market more than the individual seller, the result is a reduction in the size of the market and the overall quality of goods. Akerlof basically addresses the incentive individuals have to sell a product of low value in a market alongside high value goods and how this activity affects the market as a whole. The Economic Model To explain the model and make his points clear, the author assumes that there are just four types of cars. There are new cars and used cars, good cars and bad cars. The decision makers in this model (or economics agents) are the buyers of the used automobiles. The new owner of the vehicle makes an initial evaluation of the quality of the used car with the goal of buying a car that has the highest probability of
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This note was uploaded on 01/29/2012 for the course ECONOMICS 300 taught by Professor Instructor during the Fall '11 term at Boise State.

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412- An Analysis of George Akerlof’s - An...

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