Kimberly Greene
Professor Medcalfe
Economics 2106
June 18, 2017
Market for Lemons Mob Lab Games
While playing these Mob Lab Games, we have observed how asymmetric information is a problem. The asymmetric information is a problem because it means that one party (usually the seller) has the advantage of making better decisions because they have been given more adequate information/knowledge than another group of individuals/party (the buyer). This can lead to an overall market failure due to an imperfect balance of knowledge between the two parties. Imperfect or unequal knowledge/power leads to an unbalanced economy, which will therefore, lead to adverse selection and moral hazards. This will only result in a weaker, unbalanced economy and lead
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However, some solutions to improve the asymmetric information problem are to increase the amount of information there to the consumers. The better the access to the given information, gives consumers a better advantage of gaining more information/knowledge than the other party (the sellers) before making the decision to purchase the overall final product. Another solution includes guarantees and warranties. They help out the firm in many ways. They target consumers who are looking for overall better/higher quality final goods/services. Also, industry standards are another method to resolve the asymmetric information problem. External product certification, as well as industry standards help in verifying overall good quality goods/services. Consumer protection regulations are also a set of laws, similar to the industry standards/requirements, which are set into place and required by all firms to follow. Liability laws are laws set into place by the government as well and must be followed. Licensing is required to sell goods/services. Social Regulation is another way to improve the asymmetric information problem because its laws are set into place to ensure everyone’s