The Market For Lemons
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The Market For Lemons
''The Market for Lemons: Quality Uncertainty and the Market Mechanism'' is a widely-cited 1970 paper by economist George Akerlof which examines how the quality of goods traded in a market can degrade in the presence of information asymmetry between buyers and sellers, leaving only "lemons" behind. In American slang, a lemon is a car that is found to be defective after it has been bought. Suppose buyers cannot distinguish between a high-quality car (a "peach") and a "lemon". Then they are only willing to pay a fixed price for a car that averages the value of a "peach" and "lemon" together (''p''avg). But sellers know whether they hold a peach or a lemon. Given the fixed price at which buyers will buy, sellers will sell only when they hold "lemons" (since ''p''lemon  ''p''avg). Eventually, as enough sellers of "peaches" leave the market, the average willingness-to-pay of buyers will decrease (since the average quality of cars on the market decreased), leading to even more selle ...
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Used Car Dealers On The Industrial Estate - Geograph
Used may refer to: Common meanings *Used good, goods of any type that have been used before or pre-owned *Used to, English auxiliary verb Places *Used, Huesca, a village in Huesca, Aragon, Spain *Used, Zaragoza, a town in Zaragoza, Aragon, Spain Music * "Used" (song), a song by Rocket from the Crypt from their 1995 album ''Scream, Dracula, Scream!'' *The Used, a rock band from Orem, Utah ** ''The Used'' (album), their 2002 debut album *"Used", a song by SZA from her 2022 album ''SOS'' See also *Use (other) Use may refer to: * Use (law), an obligation on a person to whom property has been conveyed * Use (liturgy), a special form of Roman Catholic ritual adopted for use in a particular diocese * Use–mention distinction, the distinction between usin ...
{{disambig, geo ...
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Informed Consumer
The concept of the informed consumer is fundamental in the law of the European Union. Since the European Council Resolution of 14 April 1975, one of the primary objectives of the European Community, and then the European Union, has been the provision of information to consumers. The rationale is that market actors are enabled to make better choices when they are informed and have a greater capacity to understand the importance of their market actions and choices. Definition According to the European Union, "Information is a deciding factor for consumers when making their choices and affects both consumer interests and their confidence in the products and services circulating within the market." Consumer expectation The consumers expect to get fair treatment in the market place and avoid unscrupulous business dealings. They envisage a fair market environment that facilitates and supports several consumer rights: * The consumer must get a fair chance of choosing from the ran ...
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Death Spiral (insurance)
Death spiral is a condition where the structure of insurance plans leads to premiums rapidly increasing as a result of changes in the covered population. It is the result of adverse selection in insurance policies in which lower risk policy holders choose to change policies or be uninsured. The result is that costs supposedly covered by insurance are pushed back onto the insured. The term is found in the academic literature at least as early as Cutler and Zeckhauser's 1998 paper, "Adverse Selection in Health Insurance", which refers explicitly to an "adverse selection death spiral". Health insurance The process When one purchases an individual health insurance policy, one is assigned to a risk pool "group" specifically for subscribers to that policy. That group is not everyone who holds a similar policy issued by the company but only a very small portion of subscribers who hold similar policies. A group is typically open for only a set enrollment period, after which it is close ...
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Confusopoly
Confusopoly (aka Dilbert's confusopoly) is confusing marketing designed to prevent the buyer from making informed decisions. The term was invented by Scott Adams in his comic strip Dilbert. Adams defined a confusopoly as ''"a group of companies with similar products who intentionally confuse customers instead of competing on price"''. For example, similar items like mobile phones are advertised at various price plans according to different combinations of available minutes, text messaging capabilities and other services, thus making these offers practically incomparable when it could be easy to price similar units of usage to allow informed comparisons. The term confusopoly also applies because confusion within the targeted consumer group is purposefully maintained, so choices are based on emotional factors. The term has been adopted by economists. Consumer Financial Protection Bureau director Richard Cordray, championing meaningful regulation for the financial industry, used the t ...
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Adverse Selection
In economics, insurance, and risk management, adverse selection is a market situation where buyers and sellers have different information. The result is that participants with key information might participate selectively in trades at the expense of other parties who do not have the same information. In an ideal world, buyers should pay a price which reflects their willingness to pay and the value to them of the product or service, and sellers should sell at a price which reflects the quality of their goods and services. For example, a poor quality product should be inexpensive and a high quality product should have a high price. However, when one party holds information that the other party does not have, they have the opportunity to damage the other party by maximising self-utility, concealing relevant information, and perhaps even lying. Taking advantage of undisclosed information in an economic contract or trade of possession is known as adverse selection. This opportunity ...
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Magnuson–Moss Warranty Act
The Magnuson–Moss Warranty Act (P.L. 93-637) is a United States federal law ( ''et seq.''). Enacted in 1975, the federal statute governs warranties on consumer products. The law does not require any product to have a warranty (it may be sold "as is"), but if it does have a warranty, the warranty must comply with this law. The law was created to fix problems as a result of manufacturers using disclaimers on warranties in an unfair or misleading manner. Purpose According to the report from the House of Representatives which accompanied the law (House Report No. 93-1197, 93d Cong 2d Sess.), the Magnuson-Moss act was enacted by Congress in response to merchants' widespread misuse of express warranties and disclaimers. The legislative history indicates that the purpose of the act is to make warranties on consumer products more readily understood and enforceable and to provide the Federal Trade Commission with means to better protect consumers. The act was sponsored by Senator War ...
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Indicator Function
In mathematics, an indicator function or a characteristic function of a subset of a set is a function that maps elements of the subset to one, and all other elements to zero. That is, if is a subset of some set , one has \mathbf_(x)=1 if x\in A, and \mathbf_(x)=0 otherwise, where \mathbf_A is a common notation for the indicator function. Other common notations are I_A, and \chi_A. The indicator function of is the Iverson bracket of the property of belonging to ; that is, :\mathbf_(x)= \in A For example, the Dirichlet function is the indicator function of the rational numbers as a subset of the real numbers. Definition The indicator function of a subset of a set is a function \mathbf_A \colon X \to \ defined as \mathbf_A(x) := \begin 1 ~&\text~ x \in A~, \\ 0 ~&\text~ x \notin A~. \end The Iverson bracket provides the equivalent notation, \in A/math> or to be used instead of \mathbf_(x)\,. The function \mathbf_A is sometimes denoted , , , or even just . Not ...
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Monotonic Function
In mathematics, a monotonic function (or monotone function) is a function between ordered sets that preserves or reverses the given order. This concept first arose in calculus, and was later generalized to the more abstract setting of order theory. In calculus and analysis In calculus, a function f defined on a subset of the real numbers with real values is called ''monotonic'' if and only if it is either entirely non-increasing, or entirely non-decreasing. That is, as per Fig. 1, a function that increases monotonically does not exclusively have to increase, it simply must not decrease. A function is called ''monotonically increasing'' (also ''increasing'' or ''non-decreasing'') if for all x and y such that x \leq y one has f\!\left(x\right) \leq f\!\left(y\right), so f preserves the order (see Figure 1). Likewise, a function is called ''monotonically decreasing'' (also ''decreasing'' or ''non-increasing'') if, whenever x \leq y, then f\!\left(x\right) \geq f\!\left(y\r ...
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Expected Utility Hypothesis
The expected utility hypothesis is a popular concept in economics that serves as a reference guide for decisions when the payoff is uncertain. The theory recommends which option rational individuals should choose in a complex situation, based on their risk appetite and preferences. The expected utility hypothesis states an agent chooses between risky prospects by comparing expected utility values (i.e. the weighted sum of adding the respective utility values of payoffs multiplied by their probabilities). The summarised formula for expected utility is U(p)=\sum u(x_k)p_k where p_k is the probability that outcome indexed by k with payoff x_k is realized, and function ''u'' expresses the utility of each respective payoff. On a graph, the curvature of u will explain the agent's risk attitude. For example, if an agent derives 0 utils from 0 apples, 2 utils from one apple, and 3 utils from two apples, their expected utility for a 50–50 gamble between zero apples and two is 0.5''u''(0 ...
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Google Scholar
Google Scholar is a freely accessible web search engine that indexes the full text or metadata of scholarly literature across an array of publishing formats and disciplines. Released in beta in November 2004, the Google Scholar index includes peer-reviewed online academic journals and books, conference papers, theses and dissertations, preprints, abstracts, technical reports, and other scholarly literature, including court opinions and patents. Google Scholar uses a web crawler, or web robot, to identify files for inclusion in the search results. For content to be indexed in Google Scholar, it must meet certain specified criteria. An earlier statistical estimate published in PLOS One using a mark and recapture method estimated approximately 80–90% coverage of all articles published in English with an estimate of 100 million.''Trend Watch'' (2014) Nature 509(7501), 405 – discussing Madian Khabsa and C Lee Giles (2014''The Number of Scholarly Documents on the Public W ...
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Quarterly Journal Of Economics
''The Quarterly Journal of Economics'' is a peer-reviewed academic journal published by the Oxford University Press for the Harvard University Department of Economics. Its current editors-in-chief are Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer, and Stefanie Stantcheva. History It is the oldest professional journal of economics in the English language, and covers all aspects of the field—from the journal's traditional emphasis on micro-theory to both empirical and theoretical macroeconomics. Reception According to the ''Journal Citation Reports'', the journal has a 2015 impact factor of 6.662, ranking it first out of 347 journals in the category "Economics". It is generally regarded as one of the top 5 journals in economics, together with the American Economic Review, Econometrica, the Journal of Political Economy, and the Review of Economic Studies. Notable papers Some of the most influential and well-read papers in economics have been published ...
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Journal Of Economic Perspectives
The ''Journal of Economic Perspectives'' (JEP) is an economic journal published by the American Economic Association. The journal was established in 1987. It is very broad in its scope. According to its editors its purpose is: #to synthesize and integrate lessons learned from active lines of economic research; #to provide economic analysis of public policy issues; to encourage cross-fertilization of ideas among the fields of thinking; #to offer readers an accessible source for state-of-the-art economic thinking; #to suggest directions for future research; #to provide insights and readings for classroom use; #and to address issues relating to the economics profession.'' Its current editor is Heidi Williams, and its managing editor A managing editor (ME) is a senior member of a publication's management team. Typically, the managing editor reports directly to the editor-in-chief and oversees all aspects of the publication. United States In the United States, a managing edit ...
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