EBK THE ECONOMICS OF MONEY, BANKING AND
EBK THE ECONOMICS OF MONEY, BANKING AND
4th Edition
ISBN: 9780100668201
Author: Mishkin
Publisher: YUZU
Question
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Chapter 8, Problem 7Q
To determine

Whether the lemons problem is more severe for the Stocks traded at the New York Stock Exchange or those traded over the counter

Concept Introduction:

Financial Intermediation- The productive economic activity in the financial market whereby an institutional unit engages in financial transactions in the market to acquire financial assets and in the process incurs liabilities in its own account. Transaction costs and economies of large scale, asymmetric information types like adverse selection (hidden information) and Moral Hazard (hidden action) are the rationales of financial intermediation.

Lemons Problem- The situation as defined in "The Market for Lemons: Quality Uncertainty and the Market Mechanism" is a 1970 paper, by the economist George Akerlof. This problem arises due to the existence of asymmetric information between the buyer and seller regarding a product culminating into adverse selection. Here, poor quality goods about which the buyer doesn’t have complete information before buying is called the Lemon.

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