The "lemons" model suggests that in cases of asymmetric information between buyers and sellers:
A)high-quality goods will slowly drive out low quality goods due to market pressures.
B)consumers will choose both high- and low-quality goods but the general trend is toward improving quality.
C)the quantity supplied of goods with better quality tends to decline.
D)buyers end up paying a high price for high-quality goods and low price for low-quality goods.

Question

Quizplus · Accepted Answer

The "lemons" model, introduced by George Akerlof, suggests that in markets with asymmetric information, where sellers have more information about the product quality than buyers, there is a tendency for the market to decline in terms of quality. This is because buyers cannot accurately assess the quality of a product and thus are not willing to pay premium prices, leading to a market where low-quality goods ("lemons") dominate, as high-quality goods are undervalued and eventually driven out.

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