The Market for Lemons (by George Akerlof)

The Market for Lemons, by George Akerlof, describes how in markets with imperfect information, the quality of goods can decline because buyers cannot reliably distinguish between high- and low-quality items. In used car markets, for example, sellers know more about the car’s condition than buyers. If buyers fear most cars are “lemons” (poor quality), they’re only willing to pay a low price. This discourages honest sellers of good cars from participating, leading to a market dominated by low-quality cars, or “lemons,” ultimately reducing overall market efficiency and quality.