The Market for Lemons, we encountered the challenge presented when buyers of a good (or service) are unable to discern the true quality of the good. In many cases, the quality uncertainty causes buyers to protect themselves by offering lower prices, which causes sellers (especially sellers of high-quality goods) to be less likely to be willing to sell their goods. In the extreme, we can have market failure, whereby the prices offered by buyers and the prices demanded by sellers cannot be reconciled and no goods change hands.

Briefly explain how this economic model helps to explain the demand for audits in our economy. Where possible, draw parallels between the elements of the used car market and the market for the stock of corporations.