Goerge Arkelof developed the model of the market for lemons to describe second-hand car industry, as...
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Goerge Arkelof developed the model of the market for lemons" to describe second-hand car industry, as most likely all the cars are lemon. Only the seller would have information on the actual condition of the car, and they have the tendencies to keep the peach. If the exchange fulfills the expectation of parties involved, then the parties would be happy, sweet situation referred to as peach. If any of the party is unhappy with the outcome of the transaction, it will cause a sour situation referred to as lemon, known as "the lemon problem". a) Explain how the "lemons" problem could cause financial markets to fail. b) Elaborate FOUR (4) "lemons" problem in stock and equity market. (5 Marks) (8 Marks) Goerge Arkelof developed the model of the market for lemons" to describe second-hand car industry, as most likely all the cars are lemon. Only the seller would have information on the actual condition of the car, and they have the tendencies to keep the peach. If the exchange fulfills the expectation of parties involved, then the parties would be happy, sweet situation referred to as peach. If any of the party is unhappy with the outcome of the transaction, it will cause a sour situation referred to as lemon, known as "the lemon problem". a) Explain how the "lemons" problem could cause financial markets to fail. b) Elaborate FOUR (4) "lemons" problem in stock and equity market. (5 Marks) (8 Marks)
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ANSWER PART A The lemons problem in financial markets refers to the difficulty that investors and lenders have in distinguishing between good and bad ... View the full answer
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