בעיית הלימונים: למוכרים יש יותר מידע

The lemons problem arises from asymmetric information in situations where sellers have more information than buyers.

Consider a market for used cars.

Only sellers know if their car is a high-quality plum or a low-quality lemon. 

For buyers, the quality is unobservable. For example, a used car is of low quality because it was damaged in an accident. This caused dents and misaligned the suspension. However, the car may have been repaired to remove the dents and look like a high-quality car.

So, buyers can not say if the car is a high-quality plum or a low-quality lemon. 

However, it is assumed that buyers know half the cars are plums and half are lemons. They know there is a 50% probability of a car being a plum.

Buyers offer a price based on the expected value. It is assumed plums are worth $20,000, and lemons $8,000. The expected value is the product of the probability of a car being a plum and the value of a plum added to the probability of a car being a lemon and the value of a lemon. 

Because buyers cannot differentiate the plums from the lemons, they are only willing to offer their expected value of $14,000 for any used car offered for sale, which causes the problem of adverse selection.