In the market for used boats there are high-quality boats and poor-quality boats.Potential buyers cannot determine prior to purchase whether the boat is high quality or low quality.Which of the following statements best describes what is likely to happen in this market?

Question

Quizplus · Accepted Answer

This scenario is an example of the "market for lemons" problem described by George Akerlof. In a market where quality cannot be easily assessed by buyers, the price tends to reflect an average of high and low-quality goods. Sellers of high-quality boats know their boats are worth more than this average price, so they are less likely to sell, leading to a market where only lower-quality boats are sold.

In the Market for Used Boats There Are High-Quality Boats