The Market for Lemons (Akerlof)

The Market for Lemons, by George Akerlof, describes how in markets with asymmetric information—where sellers know more about a product's quality than buyers—bad products ("lemons") tend to drive out good ones. For example, if a car seller knows a vehicle's issues but buyers can’t tell, buyers may only be willing to pay a low price. This discourages honest sellers of good cars, leading to fewer quality products in the market overall. As a result, the presence of hidden problems reduces overall market efficiency and can cause a collapse or decline in quality.