The Market for "Lemons": Quality Uncertainty and the Market Mechanism

“The Market for Lemons,” a concept introduced by economist George Akerlof, describes how quality uncertainty can affect markets. When buyers can’t easily tell the difference between good and bad products (like used cars), they’re only willing to pay a fair price that reflects the average quality. This often drives sellers of high-quality items away, leaving mostly lower-quality products (“lemons”) in the market. Over time, this can reduce overall quality and confidence, potentially collapsing the market. Essentially, when buyers doubt product quality, it can hurt everyone by discouraging good suppliers and undermining market efficiency.