The "lemons" model suggests that in cases of asymmetric information between buyers and sellers:
A)low-quality goods become the preferred choice.
B)consumers are indifferent between the purchase of high- and low-quality goods.
C)the proportion of low quality goods in the market increases.
D)the availability of high quality goods in the market increases.

Question

Quizplus · Accepted Answer

The "lemons" model suggests that in cases of asymmetric information, sellers of low-quality goods have an advantage and will be able to sell their goods at a higher price than the market value. This leads to a decrease in the supply of high-quality goods and an increase in the proportion of low-quality goods in the market. Therefore, the best choice is C – the proportion of low quality goods in the market increases.

The "Lemons" Model Suggests That in Cases of Asymmetric Information