occurs when the available information is initially distributed in favor of one party relative to another in an exchange EX: **Because the seller of a car has more information than the buyer has, the potential buyer does not know whether the car is a cherry or a lemon. So the buyer guesses the car is average quality and consequently he offers an average price. The owner of a carefully maintained, good used car will be unable to get a high enough price to make selling that car worthwhile. Consequently, owners of good cars will not place their cars on the used-car market. But those with cars of less than average quality will dump their cars on the market. Hence, the lemon problem.