Quality Uncertainty and the Market for Lemons The market for Used cars o With asymmetric information Low quality goods drive high quality goods out of the market The market has failed to produce mutually beneficial trade Too many low and too few high quality cars are on the market Adverse selection occurs; the only cars on the market will be low quality cars Chapter 17 Slide 8Chapter 17 Slide 8 The Market for Used Cars ⚫ With asymmetric information: ◆ Low quality goods drive high quality goods out of the market. ◆ The market has failed to produce mutually beneficial trade. ◆ Too many low and too few high quality cars are on the market. ◆ Adverse selection occurs; the only cars on the market will be low quality cars. Quality Uncertainty and the Market for Lemons