The exhaust system on your 1986 Escort needs to be replaced, and you suspect that the price of a new exhaust system is the same as what you would get if you tried to sell the car. If you know that the car is otherwise okay, what relevance does Akerlof's model of lemons have to your decision about whether to purchase a new exhaust system?

Akerlof's model of lemons studied the used car market and came out with the following observations.

• The market price of the car is affected by the imperfect knowledge between buyers and sellers
• The used car is polished and cleaned from the exterior will attract the prospective buyers willing to pay more, irrespective of car mechanical issues
• Badly kept car is termed as lemon, and the buyer with imperfect knowledge cannot make out the difference between a good and badly kept car and will consider all cars as lemon.
• The buyers will pay less for lemons

The price of a new exhaust system will improve the life and efficiency of the car, and the buyer considering it as lemon will pay less than the expected price. It will be advisable to purchase the new exhaust system and utilize it, rather than selling it at a lower price.