The lemons problem in the used car market is that
A) the price of a lemon is too high.
B) the price of a lemon is too low.
C) no lemons are bought and sold.
D) only lemons are bought and sold.
E) Both answers A and D are correct.

Question

Quizplus · Accepted Answer

The lemons problem, as described by economist George Akerlof, refers to the issue of asymmetric information in the used car market, where sellers have more information about the quality of the car than buyers. This leads to a market where only low-quality cars ("lemons") are sold, as buyers are unable to distinguish between good and bad cars and thus are only willing to pay a price that reflects the average quality, driving out the good-quality cars.

The Lemons Problem in the Used Car Market Is That