ECON 417 HW6 Akerlof’s Model Of Lemons, Adverse Selection And Market Signaling

Name
Instructor
Course
Date
ECON 417 HW6 Akerlof’s model of lemons, adverse selection and market signaling
The demand curve, supply curve look and other market clearing prices
Based on the information the peaches and lemons will be represented as
PeachesLemonsSellers2,5001,000Buyers3,0002,000
For the peaches the equilibrium price is $ 3,000, and when the seller assumes that the probability is 1/3 and for the lemon being 2/3 the expected value for the seller is $ 1,500 as represented by (1/3)* 2.500+ (2/3)*1000. For the buyer this changes to $ 2333.33 being (1/3)*3000+ (2/3)*2,000.
The demand curve is a horizontal line, as the buyers do not have all the information about the market. Akerlof pointed out that the asymmetric information seeing occurs since the sellers may have private information about the buyers and not the other way round (Levin 657). The suppliers know what the buyers are willing to accept h...