The Market for Lemons article has a Nobel Price and written by George A. Akerlof. The problem called as a lemon because troubled automobile car market in US common parlance is known as this kind of lemon cars. Automobile market and the concretization of the topic chosen for easy recognition.
Akerlof, assumed that the car market, four kinds: new, used ones, the good and the lemons. A new car, good or lemon may be used in the same situation applies for automobiles. Individuals, well- buy a new car without knowing or lemon. Akerlof, lemon thinks that the problem of similarity between the Gresham Law. Accordingly, most new cars are lemon, bad ones of cars to be expelled from the market means. But the lemon problem, a different level of knowledge about the car with both buyers and sellers, while the Gresham Law, both the buyer and the seller is able to distinguish between good money and bad money. Buyer and seller aren’t same situation. Seller has more information than buyer. Because who is the owner of good this person know own good how situation. If buyer chooses wrong one it is adverse selection. Last one is moral hazard. It means the two sides have different information in a certain relationship that refers to or not to have the same information. This is a difficult element to the one with the right information, inaccurate or insufficient information for the one with the element of weakness. Inequality of knowledge, the adoption of asymmetrical information, the assumptions about the behaviour of economic agents, market acceptance of efficiency in resource allocation affects the front of many an important conceptualization.
Lemon problem also occurs in the financial markets. Individuals with the potential recipient of the stock, the expected profits with the company expected a good profit with low risk for high and low unable to distinguish between a company and a high risk. In this case, the receiver, and this will be willing to pay an average price of a stock of quality. The price, poor quality, the company's stock price and good quality of the company's stock price will take place. If you have information of good quality and good company the company's executives that they were more aware of the receiver if they are unwilling to sell its shares in the average quality of a firm's stock price. The companies that agreed to sell its shares at this price would be bad quality companies. The receiver does not want to buy shares in companies for the bad quality of the stock market will not work effectively.
Asymmetric information, such as other markets is an important problem that can affect financial markets. Conditions of perfect competition, especially by breaking the problem of asymmetric information in financial markets, securities and adversely affect the functioning of credit markets. The presence of asymmetric information problem in the securities markets, effectively prevent the transfer of funds between savers and investors are. In this case, marketable securities, forcing companies to be the primary source of financing and equity financing by issuing, applying to companies that often is a method of funding. Problem of asymmetric information, experience an increased risk of non-payment to the cause of those who borrow on credit markets. To lenders, so this problem does not want to give credit to the market despite safety projects and a case of credit rationing occurs.
In the absence of information to be faced with the problem of lime asymmetric. If the buyers, distinguish between good and bad firms, good stock issued by companies, will purchase the full value of stocks and bonds. Thus, financial markets, the funds can deliver the most productive investment opportunities.