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The Market for 'Lemons': Quality Uncertainty and the Market Mechanism" [1] is a widely cited seminal paper in the field of economics which explores the concept of asymmetric information in markets. The paper was written in 1970 by George Akerlof and published in the Quarterly Journal of Economics .
Sellers have a strong financial incentive to pass all used cars off as good cars, especially lemons. This makes it difficult to buy a good car at a fair price, as the buyer risks overpaying for a lemon. The result is that buyers will only pay the fair price of a lemon, so at least they reduce the risk of overpaying.
Credit rationing by definition is limiting the lenders of the supply of additional credit to borrowers who demand funds at a set quoted rate by the financial institution. [1] It is an example of market failure, as the price mechanism fails to bring about equilibrium in the market.
The study also revealed that as the number of artificial intelligent agents in the market increase, the volume of trades in the market will decrease. [ 57 ] [ 58 ] This is primarily because information asymmetry of the perceptions of value of goods and services is the basis of trade.
The market could gain access to this information, perhaps by finding it in company reports. In this case, the market will capitalize on the information found. If the market has access to the company's information, the presence of information asymmetry is removed, and as such there is no longer a state of adverse selection.
Standard economic theory suggests that in relatively open international financial markets, the savings of any country would flow to countries with the most productive investment opportunities; hence, saving rates and domestic investment rates would be uncorrelated, contrary to the empirical evidence suggested by Martin Feldstein and Charles ...
In this case, the major problem in the market is the lack of free cash reserves and flows to secure the loans. The Federal Reserve took many steps to deal with financial market liquidity worries. One of these steps was a credit line for major traders, who act as the Fed's partners in open market activities. [218]
Reckitt & Colman Ltd v Borden Inc 1 All ER 873, – also known as the Jif Lemon case – is a leading decision of the House of Lords on the tort of passing off. The Court reaffirmed the three part test (reputation and goodwill, misrepresentation, and damage) in order to establish a claim of passing off. Background per Slade LJ: Reckitt, sold lemon juice under the name "Jif Lemon" which came in ...