Agreement to use that information for their own

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agreement, to use that information for their own benefit and at the cost of the less- informed party If the car is a lemon, it is worth less to the buyer than if it has no defects Lemon problem : the problem that in a market in which it is not possible to distinguish reliable products from lemons, there are too many lemons and too few reliable products traded Buyer can’t tell difference between a lemon and a good car The price that a buyer is willing to pay for a car of unknown quality is more than the value of a lemon because the car might be a good ones
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But the price is less than the value of a good car because it might turn out to be a lemon You can see adverse selection in this used car market because there is a greater incentive to offer a lemon for sale You can also see moral hazard because the owner of a lemon has little incentive to take good care of the car, so it is likely to become an even worse lemon Signaling occurs when an informed person takes actions that send information to uninformed persons A dealer who gives a warranty on a lemon ends up bearing a high cost of repairs and gains a bad reputation
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