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Difficulties traders face in markets that involve "Lemons"

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Question(1)
Briefly describe the methods traders use in attempting to evade the difficulties they face in markets that involve "Lemons"?

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Solution Preview

a) Briefly describe the methods traders use in attempting to evade the difficulties they face in markets that involve "Lemons"?

The characteristics of a lemon market are:
1. Asymmetry of information: No buyers can accurately assess the value of a product through examination before sale is made whereas all the sellers can directly assess the value of a product prior to sale
2. There is an incentive for the seller to sell a low quality product as a higher quality one
3. There are no signaling technology or means to disclose what they hold. i.e. sellers with a Peach car have no way to credibly disclose this to buyers and distinguish themselves from ...

Solution Summary

The expert explains the concepts of markets for Lemons and how traders can take care of the difficulties offered by the market for lemons.

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