The lemons model predicts that
A) if there are low-quality goods in the market, there will be fewer or no high-quality items.
B) if there are high-quality goods in the market, there will be fewer or no low-quality items.
C) the more low-quality goods there are in the market, the more high-quality goods there will be in the market.
D) if buyers are pessimistic about the percentage of low-quality goods on the market sellers of low-quality goods will be able to charge higher prices than if buyers had neutral beliefs.

Question

Quizplus · Accepted Answer

The lemons model, introduced by George Akerlof, suggests that in markets where buyers cannot accurately assess product quality (e.g., used cars), the presence of low-quality goods ("lemons") can drive out high-quality goods. This is because buyers, unable to distinguish between high and low quality, will be willing to pay only a price reflective of the average quality, which may not be enough to keep sellers of high-quality goods in the market.

The Lemons Model Predicts That