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MENTAL MODEL · M4674

Market for Lemons

Market for Lemons
BusinessHigh supportMicroeconomics
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Version 1.0.0 · Updated 2026-07-28

CORE DEFINITION

"The Market for Lemons: Quality Uncertainty and the Market Mechanism" is a paper published in 1970 by American economist George Akerlof. It explains the economic phenomenon where, when there is information asymmetry between buyers and sellers in a market, the quality of goods in the market continuously declines. George Akerlof, along with Michael Spence and Joseph Stiglitz, jointly won the 2001 Nobel Prize in Economic Sciences for their research on asymmetric information. The paper was initially rejected by three authoritative economics journals for being considered "shallow." After much difficulty, it was published in the Quarterly Journal of Economics at Harvard University, where it immediately caused a great stir. In the title of the paper, "lemon" is an American slang term referring to a car that is found to be defective after purchase; high-quality used cars are called "peaches" in American slang.

SCAFFOLDING EFFECT

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"The Market for Lemons: Quality Uncertainty and the Market Mechanism" is a paper published in 1970 by American economist George Akerlof. It explains the economic phenomenon where, when there is information asymmetry between buyers and sellers in a market, the quality of goods in the market continuously declines.

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In Akerlof's market for lemons, in markets with information asymmetry such as used cars, buyers are only willing to pay the average price, causing good products to exit and bad products (lemons) to flood the market, leading to market shrinkage.

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Source support: Explicit

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