Accounting Assignment

Accounting Assignment

Market for lemons argument theory

"The Market for" Lemons: Quality Uncertainty and the Market Mechanism" is an article of economic theory of George Akerlof written in 1970 laying the foundations of the theory of adverse selection. The main contribution of this paper is to demonstrate how asymmetric information is given to the seller of a property, in this case the seller knows more than the buyer about the quality of the good he sells. It can lead to reducing the number of transactions or the disappearance of the market, even under otherwise competitive situation. Strength of this contribution is to show how such phenomena can occur in a very simple analytical framework.

The article describes the market for used cars. Of these cars, some are in good condition, and others contain hidden defects, more or less serious, but known to the seller that the buyer can not discover before buying the vehicle. This market does not work well in conditions of perfect competition: the large numbers of officers on both sides ensures atomicity, but are heterogeneous traded goods (cars are of different qualities) and there is a information asymmetry between buyers and sellers (Wolk and Tearney, 2004).

In this market, sellers who know that their car is in good shape who want to get a price equal to the quality of their vehicles, while sellers of Jew's harps are willing to sell at a low price. For their part, buyers know they are not able to distinguish between a good car and a jaw harp. Faced with a vendor who in good faith can be both a seller who lies jalopy, a buyer will be willing to pay a lower price than a good car, because he knows he can fall into a poor quality car. Knowing this, the seller of a good car that will not sell the vehicle unless its value is still refusing the offer made to him. The node model is that sellers of Jew's harps can always pretend to be good vehicles for sellers to buyers. Being unable to distinguish one from another, they revise downward what they are willing to pay, leading to the eviction of good salespeople (Schroeder and Cathey, 2001).

Public Interest Theory

This section discusses and explains the term public's interest and the administrative responsibility with the essence of some ethical obligations facing up to the public interest and administration in their day to day decision making. This essay will also exhibit some of the recent trends in privatizing the government functions and the type of dilemmas that will attain the public interests.

True to its name, the public interest theory of regulation arose historically from the need to protect individuals in the face of private interests. Public interest theory of regulation stems from the school of thought that regulation needed to be established to counter the conflict between private profit making institutions and the general welfare of society. This concept of public interest can be further pronounced as the optimal way of equitable distribution ...