➼ Nowadays with the end/no-end of the pandemic we are faced with “INFORMATION” issues, we are being fed with information, half truths, misleading information; we are told about food shortages, car shortages, labour shortages and are witnessing the baby formula shortage.
➼ This leads me to reconsider one of important things in economics… the question of adverse selection… this question arises when the lack of information limits the quality of goods exchanged.
➼ The presence of imperfect information can discourage both buyers and sellers from participating in the market. Buyers may become reluctant to participate because they cannot determine the quality of a product. Sellers of high-quality or medium-quality goods may be reluctant to participate because it is difficult to demonstrate the quality of their goods to buyers—and since buyers cannot determine which goods have higher quality, they are likely to be unwilling to pay a higher price for such goods.
➼ Imagine a situation where a used car dealer has a lot full of used cars that do not seem to be selling, and so the dealer decides to cut the prices of the cars to sell a greater quantity. In a market with imperfect information, many buyers may assume that the lower price implies low-quality cars. As a result, the lower price may not attract more customers. Conversely, a dealer who raises prices may find that customers assume that the higher price means that cars are of higher quality; because of raising prices, the dealer might sell more cars. Sounds familiar?
➼ With the shortage of baby, people are starting to be afraid that the situation will force lower quality baby food to be imported to the USA due to the panic among young mothers. Will other products / services follow suit?
Are we going towards a “market for lemons”: which is a market in which only low quality products (“lemons”) are offered for sale?
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