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Market for lemons

📈 Economics By CampusDown Wiki Editorial Team Last updated
A market for lemons is one where information asymmetry about quality leaves mainly low-quality goods for sale.
Contents
  1. 1. Market for lemons
  2. 2. Frequently asked questions
  3. 3. References

Market for lemons

In his 1970 paper, George Akerlof used used cars to show that when only sellers know quality, buyers pay for average quality, so owners of good cars withdraw and “lemons” dominate — a case of adverse selection. Warranties, inspections, certification and reputation reduce the problem. Akerlof shared the 2001 Nobel Prize in economics.

Frequently asked questions

Why “lemons”?
US slang for defective cars.
How does it relate to adverse selection?
It is the classic example of it.

References

  1. Akerlof, G. A. (1970). The market for "lemons": Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84(3), 488–500.

Reports and materials that use this theory (Korean)

There are no materials dedicated to this theory yet, but you can search related reports in the CampusDown library (Korean).

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Adverse selectionWhat adverse selection is, Akerlof’s 1970 market for lemons, adverse selection in insurance, how it differs from moral hazard (before vs after the contract), and remedies such as signalling, screening and mandatory coverage.📈 EconomicsMoral hazardWhat moral hazard means in economics, hidden action after a contract, examples in insurance, bailouts and employment, how it differs from adverse selection, and remedies such as deductibles, incentive pay and monitoring.📈 EconomicsGresham’s lawGresham’s law holds that when two monies with different intrinsic values must legally circulate at the same value, the better money is hoarded and the📈 EconomicsSunk Cost and the Sunk Cost FallacySunk cost explained: why unrecoverable past costs should not affect decisions, the sunk cost (Concorde) fallacy, Arkes and Blumer's experiment, escalation of commitment, and how to avoid it in investing and career choices.📈 Economics

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This article was last updated on October 24, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.