Lemons problem

Q. Are lemons problems likely to be more common in some industries and less common in others? Based on your answer to this question, should government regulatory activities designed to reduce the scope of lemons problems take the form of economic regulation or social regulation? Take a stand, and support your reasoning.

The lemons problems are likely to be more common in some industries and less common in others because the lemons problem means the potential for asymmetric information to bring about a general decline in product quality in an industry. For example, lemons problems is most common in the industries of credence goods such as pharmaceuticals, health care, and services. From this point of view, the government regulatory activities are required in order to reduce the lemons problems in that the lemons problems would make negative effects on the quality and price of products. By considering the situation, social regulation might be recommended with the reason that the regulation will decrease adverse spillovers of products. On the other hand, the economic regulation would make the situation worse. It is because the economic regulation would attribute price to be decreased than the profit-maximizing price under the monopoly economic system.