Question

The exhaust system on your 1986 Escort needs to be replaced, and you suspect that the price of a new exhaust system is the same as what you would get if you tried to sell the car. If you know that the car is otherwise okay, what relevance does akerlof’s model of lemons have to your decision about whether to purchase a new exhaust system?

Answer 1

This problem related with Assymetric information ,this problem can be solved with akerlofs model of lemons to decide wheter to purchase a new exhaust system.

so u are in a dilemma to sell a car or to buy a new exhaust first u have to decide on the steps postives and negatives

• • seller(U)  do not distinguish among good cars versus lemons, they sell what’s with them on the defined price, if U trying to sell the car for X and U got that price U would again buy a new car with X+Y..
• If U are trying to sell the car and got that price that would not benifices the buyer it would be a loss for him because he thinks its a good car and buy it after he realize that exhaust has to replaced .
• So if u have an idea of selling a car u can replace the exhaust and sell it with adding the exhaust amount to the price and make it certified so that assymetric dilemma can be reduced for the buyer.
• And if u have no idea of selling the car u can replace the exhaust system by going to an certified dealer and u can replace the product and use it or
• U can hire an expertise to decide which exhaust brand has to be replaced wheter the condition of car is good or bad ,if everything other than exhaust is good u can replace and use it or if bad u can sell the car through various modes offline and online.

hence the akerlofs lemons problems is solved