Econ3077 Essay Example | Topics and Well Written Essays - 250 words

Econ3077 - Essay Example In such cases, a buyer will be willing to purchase or rather to pay an average price for any quality stock. At this point, he brings in the idea of high and a low quality company. For a high quality company, the executives will not be willing to sell anything at an average price; whether stock or shares. However, for the companies that agree to sell at an average price, they are deemed to be of low quality since it will destroy the quality of the stock market. Additionally, Akerlof (2003) mentions how heterogeneity in quality and the asymmetric information leads to diminishing or distraction of markets that have indefinite guarantees. Thus, presence of asymmetry information makes the buyer not to distinguish the quality of products. As a result, this gives sellers an opportunity to sell the low-quality goods at the same value as the high quality goods. However, the buyer takes quality into consideration and the goods with the average quality are the only ones considered. Consequentially, the goods that have high quality will be driven off the market in a recurring manner until there is no trade