George Akerloff Theorized That Adverse Selection in the Used Car

question 9

Essay

George Akerloff theorized that adverse selection in the used car market could be so bad that the market completely unravels and no good used cars are offered for sale.But,of course,there probably are some good used cars offered for sale in real used car markets.What methods have developed in the used car market to overcome this problem of asymmetric information and to prevent market unraveling?

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Definitions:

Market Share

The percentage of an industry's sales that a particular company controls.

Imperfectly Competitive Industry

An industry in which individual firms have some control over the price of their output.

Substitutes Exist

A situation in which multiple products or services can fulfill the same need or desire, allowing consumers to switch among them based on price, quality, or preference.

Raise Price

An action taken by producers or sellers to increase the cost at which goods or services are sold, often in response to market conditions.