How can the idea of Akerlof's 'lemons' be applied to goods and services markets (that doesn't include second-hand cars)?
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$\begingroup$ What is the difference between the second-hand car market and other markets? $\endgroup$– OlivApr 7, 2017 at 13:05
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Health insurance. If an insurance company must charge a single premium because they cannot distinguish between low risk and high risk individuals, they will charge a premium based on average risk. As a result the proportion of high risk individuals in the pool of insured individuals increases, whilst the proportion of low risk individuals decreases (healthy individuals are less willing to pay a high price of insurance), which pushes up the average price of premiums, further reduces the proportion of low risk individuals, etc. The market fails.
